IMF Warns Iran War Could Trigger Global Recession and Higher Inflation

The International Monetary Fund (IMF) has warned that a further escalation of the conflict in Iran could spark a global recession, surging inflation and financial market instability.

In its latest half-yearly update the Washington-based fund cut its 2026 global growth forecasts citing the mounting economic damage in the Middle East. The IMF noted that while the entire world faces slower growth developing nations and energy-importing countries will be hit the hardest.

Oil prices remained volatile, hovering near $100 a barrel following a U.S. blockade of the Strait of Hormuz and stalled negotiations. The IMF outlined a "severe scenario" where a prolonged war and high energy costs could push global growth down to 2%, a level previously seen only during major crises like the 2008 financial crash and the 2020 pandemic.

The UK is expected to suffer the sharpest downgrade among G7 nations with growth forecasts slashed to 0.8% and inflation projected to reach 4%. UK Chancellor Rachel Reeves currently in Washington is expected to call for a coordinated global response to the crisis while promising targeted support for domestic businesses.

IMF Chief Economist Pierre-Olivier Gourinchas warned that even with a temporary ceasefire "some damage is already done." The fund urged central banks to remain vigilant against rising prices and advised governments to avoid expensive broad subsidies in favor of targeted aid citing dangerously high global debt levels.