UK to ‘flirt’ with recession as Iran war oil shock bites, report warns

20th April, 2026 | News

Rising global oil prices, driven by tensions linked to the Iran conflict, could push the UK economy close to recession this year and lead to significant job losses, according to a new forecast.

The Item Club, which uses Treasury-based models, warned that nearly 250,000 jobs may be lost as higher energy costs ripple through the economy. The group said the UK is likely to “flirt” with a recession, as surging oil prices squeeze household incomes and disrupt business activity.

Oil markets have been volatile in recent weeks, particularly around the Strait of Hormuz, a critical passage for global energy supplies. Renewed instability in the region has pushed Brent crude prices up by about 5%, reaching around $95 per barrel in early trading. While this is below last month’s peak of nearly $120, ongoing supply disruptions continue to strain global markets.

The forecast suggests UK economic growth will slow sharply to 0.7% this year—down from 1.4% in 2025—while unemployment is expected to rise to 5.8% by next year. Analysts say the labour market could face its biggest shock since the COVID-19 pandemic.

Higher fuel costs are already feeding into broader inflation, affecting everything from transportation to food prices. However, despite inflation potentially reaching 4%, the Bank of England is not expected to raise interest rates further. The Item Club believes current rates—standing at 3.75%—are already restrictive enough to manage price pressures.

Economists warn that even if the conflict eases soon, long-term damage to energy infrastructure could keep supply tight for years. This would mean sustained high costs for consumers and businesses alike.

Overall, the outlook highlights a fragile economic environment, where global geopolitical tensions are increasingly shaping domestic financial stability and everyday living costs.