UK economy in peril as growth forecast slashed in half
The UK economy is set to grow by half as much as economists predicted before the war in Iran started as forecasters attempt to make sense of how deep the impact of an energy price shock will be.
A leading economics consultancy has revised its UK growth forecast down to 0.4 per cent compared to a previous estimate of 0.9 per cent.
Oxford Economics said its current assumptions on oil and gas prices would keep interest rates elevated and pile on additional cost burdens on businesses, dampening investment prospects across the country.
A growth rate of just 0.4 per cent would be less than half that projected by the Office for Budget Responsibility (OBR) earlier this month.
The UK has suffered from slow growth in recent years, with GDP rising by 1.3 per cent over the course of 2025 and 1.1 per cent the year before.
But the forecast could be revised down again should the war continue for several more weeks and more key energy infrastructure sites across Gulf countries including Qatar and Saudi Arabia are damaged by missiles.
Oxford Economics analysts assumed that the Brent crude oil price would average at around $113 per barrel over the next three months while a jump in European gas prices would contribute to a 19 per cent rise in the Ofgem energy price cap from July.
The consultancy previously warned that a further rise in oil prices to $140 per barrel could plunge the UK into a recession.
City broker Peel Hunt also revised down its growth forecast for the UK economy by 0.4 percentage points.
UK economy in peril
Separately, the energy advisory group Cornwall Insight estimated that the energy regulator’s price cap could rise by near £330 in July to £1,972 a year due to market changes over the last three weeks.
The war in the Middle East could yet worsen as reports suggest that Israeli and US troops could be sent to Iran.
Axios reported that President Trump was considering invading Iran’s Kharg Island, which is critical for around 90 per cent of the country’s oil exports while Israel’s Benjamin Netanyahu hinted at “many possibilities” for a military operation to take place on the ground.
The UK government has insisted that it has not been dragged into the all-out war, though Iran’s foreign minister told Yvette Cooper, the foreign secretary, that the decision to allow UK military bases to be used by the US was an act of “aggression”.
A Downing Street spokesman said: “Our position has been crystal clear from the outset.
“We didn’t participate in the initial strikes and we’re not getting drawn into the wider war.”