Economists warn that UK economic growth may be halved due to the impact of the Iran war.

Forecasters warn that as cautious consumers further tighten their spending and the Bank of England prepares for possible rate hikes, UK economic growth could halve this year. Pantheon Macroeconomics predicts that growth will be impacted by 0.8 percentage points over the next two years, bringing economic growth in 2026 to 0.6%, lower than 1.3% in 2025. KPMG and Barclays expect growth to slow to 0.7% this year, respectively lower than previous forecasts of 1% and 1.1%. This shift in expectations comes as the Bank of England says it is "prepared to take action at any time" to prevent a feedback loop of price increases triggered by the Iran conflict. This has led traders to increase bets on rate hikes, which could dampen economic growth; the market expects four 25-basis-point rate hikes throughout the year. The Bank of England expects gasoline price increases to push March inflation up to 3.5%, while economists warn that inflation may rise to as high as 5% later this year.