NIESR Warns Middle East Conflict Could Cost UK £35B by 2027

The National Institute of Economic and Social Research has warned that a Middle East conflict involving Iran could shrink the UK economy by 35 billion pounds by the end of 2027 even in a best-case scenario of swift resolution, with risks of recession if the crisis drags on.

In its latest quarterly projections, released Wednesday ahead of a Bank of England interest rate decision, NIESR slashed its growth forecasts to 0.9 percent for this year, down from 1.4 percent in February, and to 1 percent for next year, from 1.3 percent. The downgrades stem from surging oil and gas prices triggered by the conflict, which has heightened the UK's vulnerability to global energy shocks. Inflation, currently at 3.3 percent, is projected to peak at 4.1 percent in January 2027 before returning to the Bank's 2 percent target only in 2028.

NIESR anticipates the Bank of England will hold its benchmark rate at 3.75 percent when its Monetary Policy Committee meets Thursday but raise it to 4 percent in July. In a more severe scenario, where oil prices climb to 140 dollars per barrel and the Strait of Hormuz remains disrupted, the economy could lose up to 68 billion pounds in output. That outlook...