Britain is edging toward recession as the ongoing US-Israel war on Iran sends energy prices surging, shatters business confidence, and threatens to push a quarter of a million people out of work by mid-2027. Two major accounting firms have issued stark warnings about the scale of the economic shock, with analysts comparing the potential damage to that of the Covid-19 pandemic. Chancellor Rachel Reeves has moved quickly, summoning bank chiefs for emergency talks aimed at containing the fallout.

The EY Item Club, an economic forecasting group, projects that UK growth will halve from 1.4% in 2025 to just 0.7% this year, with the economy expected to flatline in the second and third quarters — a situation its chief economic adviser Matt Swannell described as the country being pushed "to the brink of a technical recession." Unemployment, already at a five-year high of 5.2%, could climb to 5.8% by mid-2027, adding roughly 250,000 more people to the jobless total. Inflation is forecast to rise to nearly 4% in the second half of 2026, almost double the Bank of England's 2% target, though analysts expect policymakers to refrain from sharp interest rate increases. The IMF has already identified the UK as facing the largest growth downgrade among G7 nations for 2026.

A separate survey by Deloitte found that confidence among chief financial officers at major British companies has fallen to its lowest level since the start of the pandemic, dropping to a net -57% in late March. Finance leaders cited energy costs, inflation, and cyber-attacks — the latter linked to a reported surge in Iran-affiliated activity — as their top concerns. Companies are now prioritising cost-cutting and cash conservation over investment and hiring, reinforcing the downward economic spiral that analysts fear.

At the heart of the crisis lies the Strait of Hormuz, the narrow waterway between Oman and Iran through which roughly a fifth of the world's oil and liquefied natural gas passes. Iran's closure of the strait, combined with strikes on regional neighbours, has driven a steep rise in energy prices globally. A brief moment of optimism last week — when Iran announced a full reopening of the strait, prompting US President Donald Trump to celebrate and oil prices to fall by 10% — evaporated quickly when Iranian forces reversed course and struck two vessels attempting to pass through. Markets reacted sharply, with oil prices spiking again and stock markets falling.

Analysts warn that even if a ceasefire holds and US-Iran negotiations resume, a rapid return to pre-war energy prices is far from guaranteed. Experts drawing parallels with the 1973 OPEC oil embargo note that prices can remain elevated long after the immediate trigger is removed. The head of Gunvor, a Geneva-based commodity trading firm, has warned of sharp and unpredictable oil price swings through at least June, adding that his company booked $1.6 billion in gross profit in the first quarter of 2026 alone — matching its entire haul from the previous year. For British consumers and businesses already squeezed by high costs, the prospect of a prolonged energy shock represents a serious and growing threat to economic stability.