UK Economy Was Fragile Even Before Iran War, Analysis Says

According to BBC economics editor Dharshini David, the UK economy was already showing signs of fragility even before the geopolitical shock triggered by the war involving Iran. The government had hoped that 2026 would mark a turning point when economic growth began to strengthen, but recent indicators suggest momentum has weakened.

Economic activity slowed during the second half of 2025 as consumer spending softened. Concerns over tax increases and a potential rise in unemployment led households to rein in spending, weighing on domestic demand and limiting growth prospects.

The Office for Budget Responsibility (OBR), the UK’s independent fiscal watchdog, now expects the British economy to grow by around 1.1% in 2026, down from a previous forecast of 1.4%. At the same time, the unemployment rate is projected to rise and could peak at roughly 5.3% during the year.

Economists warn that escalating tensions in the Middle East following US and Israeli military actions against Iran could further complicate the outlook. Higher oil and gas prices may push inflation upward and increase costs for households and businesses, potentially placing additional pressure on an already fragile economic recovery.