Burnham warned of Iran war impact on UK growth next year

Treasury sources have revealed that the UK economy may struggle to grow by just 0.3% in 2027 if the conflict in Iran persists and disrupts the Strait of Hormuz until the end of 2026. This dire projection, reported by Bloomberg, comes after a strong beginning to the year for the UK economy. However, growth has since slowed due to geopolitical tensions in the Middle East, raising oil and fuel prices while disrupting supply chains.

Official figures released on Thursday will reveal the economy's growth between April and June of this year, with economists anticipating a modest 0.4% increase for the quarter. Should Iran and the US fail to reach a lasting peace deal by this time next year, and the Strait of Hormuz remains effectively closed for five months, the UK economy would only grow by 0.9% in 2026, falling short of the 1.1% forecast by the Office for Budget Responsibility in March.

Meanwhile, inflation is projected to peak at 4.3% in the first three months of 2027, slightly above the Bank of England's 2% target. The prime minister and chancellor are under pressure to use the upcoming Budget on October 28 to alleviate financial burdens on households and businesses. While Burnham has launched policies to address the cost of living crisis, he believes more action is necessary and has tasked Chancellor Healey with exploring additional measures for the Budget.

However, Healey has emphasized fiscal discipline, which could limit the government's spending capabilities. Burnham has pledged to adhere to the party's 2024 manifesto, which includes not raising income tax, VAT, or National Insurance contributions, and adhering to the fiscal rules set by former Chancellor Rachel Reeves.