How the Iran War Will Determine Britain's Economic Growth

The Iran war could "halt growth" in the UK economy as the success of Andy Burnham and John Healey's economic management largely hinges on President Trump's decision-making, a City firm has warned. Big Four consultancy EY has said that the UK economy could perform better than first expected this year as its growth forecast was revised up to 0.9 per cent. But economists at the firm said baseline forecasts hinged on the opening up of the Strait of Hormuz, allowing around a fifth of global oil and gas supplies as well as critical goods to leave the Gulf region. EY analysts said "prolonged energy price disruption may halt growth in 2027". A separate forecast for a scenario where disruption continues into the middle of 2027 showed growth would slow to 0.5 per cent this year and contract by 0.2 per cent next year. And while inflation is regardless set to skim 3.5 per cent by the end of the year, the firm's adverse scenario showed that inflation could hit 6.4 per cent within a matter of months. On Sunday morning, President Trump hinted that a new peace deal with Iran was close to agreement, raising hopes that the world economy might avoid the worst economic outcomes of war. Investors and policymakers may yet treat any declarations by Trump or Iranian leaders with some skepticism given a Memorandum of Understanding quickly broke down as strikes by Iran and the US broke a 60-day ceasefire. UK economy to face 'test' this year EY's forecasts cast a shadow over Andy Burnham's optimism for the UK economy and drive to ease the cost of living for businesses and households. On Sunday, Chancellor John Healey admitted the government "can't completely stop the squeeze" faced by businesses and families over the coming months. Peter Arnold, EY's chief economist in the UK, said recent volatility in oil and gas prices would once again "test" the country's resilience to shocks, even as growth had beaten expectations in the first half of the year. He added that the country would rely on technology and some business services to boost growth, with the construction still a "concern" due to rising costs, which have risen by more than 30 per cent since 2019. Vacancies across construction are the only private sector industry that has remained above pre-pandemic levels as job postings have dropped across manufacturing and services, according to analysis. The consultancy's analysis suggested that agentic AI would help improve productivity across the economy. By City AM