- Growth outlook halved from earlier 0.9 per cent forecast.
- Energy price surge expected to push costs higher from July.
- Further escalation could risk recession, analysts warn.
The UK economy could grow at just 0.4 per cent this year, according to revised forecasts, as the impact of rising energy prices linked to the Iran conflict begins to filter through.
Oxford Economics has cut its growth outlook sharply from an earlier estimate of 0.9 per cent, pointing to higher oil and gas prices and the knock-on effects for businesses and consumers. The downgrade reflects growing uncertainty over how long the current energy shock will last and how deeply it could affect economic activity.
The revised figure is also well below expectations set earlier by the Office for Budget Responsibility, highlighting how quickly the outlook has shifted in recent weeks.
Energy shock clouds recovery hopes
At the centre of the slowdown is a surge in global energy prices. Oxford Economics expects Brent crude to average around £89 ($113) a barrel over the next three months, while European gas prices remain elevated.
The consultancy estimates this could lead to a 19 per cent rise in the Ofgem energy price cap from July, adding further pressure on households and businesses already dealing with higher costs.
Higher energy prices tend to feed into inflation, which in turn can keep interest rates elevated. That combination is likely to weigh on investment, as companies hold back spending amid rising uncertainty.
Analysts also warned that if oil prices were to climb further to around £110 ($140) a barrel, the UK could face the risk of slipping into recession.
Other forecasters are taking a similar view. City broker Peel Hunt has also reduced its UK growth expectations by 0.4 percentage points, suggesting a broader reassessment is under way.
Uncertainty tied to global tensions
The outlook remains closely tied to developments in the Middle East. Reports suggest the conflict could escalate further, with discussions around potential military action involving US and Israeli forces.
Axios reported that President Donald Trump is considering a move on Iran’s Kharg Island, a key hub handling about 90 per cent of the country’s oil exports. Israel’s prime minister Benjamin Netanyahu has also hinted at further military options, reportedly saying there are “many possibilities”, as quoted in a news report.
The UK government has maintained that it is not directly involved in the conflict. A Downing Street spokesperson reportedly said the UK did not take part in initial strikes and would not be drawn into a wider war.
At the same time, tensions appear to be rising diplomatically. Iran’s foreign minister has reportedly described the use of UK bases by US forces as an act of “aggression”.
For the UK economy, much may depend on how long the conflict continues and whether further disruption hits key energy infrastructure. With growth already modest in recent years, the latest downgrade suggests the recovery could face another setback if energy pressures persist.
