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UK GDP growth outlook slumps as Strait of Hormuz disruption persists

Treasury modelling in a worst case assumes the Strait remains effectively closed for five months, with UK GDP growth projected at 0.3% in 2027 and inflation peaking at 4.3% early next year.

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UK finance officials have warned that disruption linked to an Iran conflict could weigh heavily on the UK economy, with internal modelling suggesting only modest growth next year if the Strait of Hormuz remains effectively closed through the end of 2026, BBC Business reports.

According to Treasury sources, the scenario was presented to new Prime Minister Andy Burnham and Chancellor John Healey and included a pathway where no permanent US-Iran peace deal is reached until the new year.

In that case, Treasury projections point to UK GDP growth of as low as 0.3% in 2027, far below the Office for Budget Responsibility forecast of 1.6% for the same year. For 2026, the modelling suggests growth of 0.9%, slightly under the OBR's 1.1% forecast issued in March.

The report says the conflict has already pushed up oil and fuel prices and disrupted supply chains, with inflation forecast to peak at 4.3% in the first three months of 2027, versus 2.6% currently, just above the Bank of England's 2% target. Official figures due on Thursday are expected to show how much the economy grew between April and June this year.

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