UK Treasury Warns of Severe Growth Slump Over Iran Conflict

Internal modeling from HM Treasury warns that the British economy faces severe stagnation if the conflict between the United States and Iran continues to disrupt the Strait of Hormuz through 2026. Andy Burnham, the Prime Minister, and Chancellor John Healey received projections showing GDP growth could fall to 0.9% in 2026 and as low as 0.3% in 2027. These figures are significantly lower than the Office for Budget Responsibility's forecasts of 1.1% and 1.6% for those respective years.

The Treasury warns that Consumer Price Index inflation could peak at 4.3% in early 2027 due to elevated oil and gas prices and disrupted supply chains. These economic pressures complicate the administration's first budget, scheduled for October 28. While the Treasury views this worst-case scenario as reasonably likely, officials also modeled a more optimistic outcome where a lasting peace deal reopens the waterway within weeks.

In response to rising cost-of-living pressures, Prime Minister Burnham has removed VAT from domestic electricity bills and ended subscription traps. He has requested further support measures for the upcoming budget to ensure growth in every postcode. Chancellor Healey stated that addressing the cost of living is his main focus, though he intends to maintain strong fiscal discipline and adhere to pledges against increasing income tax, VAT, or National Insurance. Separately, Burnham recently opened a government headquarters in Manchester called No 10 North to promote regional development.