Treasury internal modelling presented to Prime Minister Andy Burnham and Chancellor John Healey projects UK GDP growth of as little as 0.3% in 2027 if disruption in the Strait of Hormuz continues until the end of 2026, according to Treasury sources, as first reported by Bloomberg.
UK economy could grow just 0.3% in 2027 under prolonged Strait of Hormuz disruption, Treasury modelling shows
Treasury internal modelling presented to Prime Minister Andy Burnham and Chancellor John Healey projects UK GDP growth of as little as 0.3% in 2027 if disruption in the Strait of Hormuz continues until the end of 2026, according to Treasury sources, as first reported by Bloomberg.
The modelling outlines a reasonable worst-case scenario in which the Strait of Hormuz remains effectively closed for the next five months and no permanent US-Iran peace deal is reached until the new year.
Under that scenario, UK GDP growth in 2026 would reach 0.9%, slightly below the 1.1% forecast made by the Office for Budget Responsibility (OBR) in March. The projected 0.3% growth for 2027 would be substantially lower than the OBR's 1.6% forecast for that year.
The modelling also projects that inflation would peak at 4.3% in the first quarter of next year. It currently stands at 2.6%, just above the Bank of England's 2% target.
The Iran war has pushed up oil and fuel prices and disrupted supply chains, affecting some businesses. The UK economy recorded a strong start to the year before growth faltered.
Official figures due on Thursday are expected to show how much the economy grew between April and June of this year, with economists anticipating growth of 0.4% for that quarter.
Government officials have said they routinely plan for all possible scenarios.
- No comment or response from the Office for Budget Responsibility is included.
- No comment from the Bank of England is included.
- The basis or methodology of the Treasury modelling is not described.
- No independent economist reaction to the Treasury projections is included.
- The nature and current status of the Iran war and Strait of Hormuz disruption are not detailed.