Burnham warned of Iran war impact on UK growth next year
Andy Burnham has been briefed that the UK economy will barely grow next year if disruption in the Strait of Hormuz continues until the end
Andy Burnham has been briefed that the UK economy will barely grow next year if disruption in the Strait of Hormuz continues until the end of 2026. Treasury sources have confirmed that internal modelling presented to the new prime minister and chancellor suggests UK GDP growth could be as low as 0.3% in 2027, as first reported by Bloomberg. Government officials say they routinely plan for all possible scenarios.
The UK economy saw a strong start to the year, but growth then faltered with the conflict in the Middle East affecting some businesses. The Iran war has pushed up oil and fuel prices, and also disrupted supply chains. On Thursday, official figures will show how much the economy grew between April and June of this year. Economists are expecting growth of 0.4% for the three months.
It is understood that Burnham and Chancellor John Healey were presented with a reasonable worst-case scenario of the Strait of Hormuz remaining effectively closed for the next five months, and no permanent US-Iran peace deal until the new year. The Treasury modelling for that scenario was that the UK economy would grow by 0.9% over 2026 - slightly under the 1.1% forecast by the Office for Budget Responsibility (OBR) in March.
The prospect was much dimmer for next year, with just 0.3% growth projected - much lower than the OBR's 1.6% forecast for 2027. Under the modelling, inflation would peak at 4.3% in the first three months of next year. It currently stands at 2.6%, just above the Bank of England's 2% target.
The BriefWire