UK faces £35bn hit and risk of recession this year over impact of Iran war, thinktank warns
Summary
A UK thinktank warns that the Iran war could cost Britain £35 billion and raise the risk of a recession this year. The rising energy prices linked to the conflict are expected to slow economic growth and increase inflation, forcing the government to consider financial support and the Bank of England to possibly raise interest rates.Key Facts
- The National Institute of Economic and Social Research (Niesr) predicts a £35 billion economic hit for the UK due to the Iran war.
- Even in the best case, UK economic growth will slow this year and next because of the conflict.
- Rising energy costs from the war are making households poorer and businesses face higher expenses.
- Under a severe scenario, oil prices could reach $140 a barrel, risking inflation above 5% and a UK recession in late 2024.
- The Bank of England may raise interest rates by up to 1.5% if inflation worsens, the biggest hike since 1992.
- The government is looking at targeted, temporary financial support to help people affected by higher energy bills.
- UK government borrowing is expected to increase by almost £24 billion by 2030 due to the economic impact.
- Borrowing costs on UK government bonds have risen sharply, with 10-year bond yields passing 5%.
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