UK warned growth could stall if Strait of Hormuz disruption continues

The UK economy could grow by just 0.3% in 2027 if disruption in the Strait of Hormuz continues for months, according to internal Treasury modelling briefed to the new prime minister and chancellor. The scenario assumes the waterway remains effectively closed for the next five months and that no permanent US-Iran peace deal is reached until the new year. Officials say they routinely prepare for a range of possible outcomes, but the assessment points to a sharper economic hit if the conflict in the Middle East continues to affect energy markets and supply chains.

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Treasury sources said the modelling was presented to Andy Burnham and Chancellor John Healey. Under the same scenario, UK GDP would rise by 0.9% over 2026, slightly below the 1.1% forecast made by the Office for Budget Responsibility in March. The projection for 2027 is much weaker, at 0.3%, compared with the OBR's 1.6% forecast.

The modelling also suggests inflation could peak at 4.3% in the first three months of next year, up from 2.6% at present and above the Bank of England's 2% target. The warning comes as the UK economy has already shown signs of slowing after a strong start to the year. Government officials said growth later faltered as the conflict in the Middle East affected some businesses.

The Iran war has pushed up oil and fuel prices and disrupted supply chains, adding pressure to households and firms already facing higher costs. Official figures due on Thursday are expected to show GDP growth of 0.4% for the April-to-June period. The assessment matters because the Strait of Hormuz is a critical route for global energy shipments, and prolonged disruption can quickly feed through to fuel prices, inflation and business confidence.

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For the UK, that means a geopolitical shock far from home could still affect domestic growth, living costs and the government's room for manoeuvre. The modelling also underlines how closely the economic outlook is tied to the pace of any de-escalation in the wider conflict. The briefing reflects a broader pattern of governments stress-testing their economies against energy and trade shocks linked to the war.

In this case, the Treasury scenario appears to assume a prolonged period of uncertainty rather than an immediate return to normal shipping conditions. That makes the forecast especially sensitive to developments in the Middle East, where any change in access through the strait could alter oil prices and inflation expectations quickly. What remains unclear is how likely the worst-case scenario is, and whether the disruption would last long enough to produce the weaker growth path set out in the modelling.

The next key data point will be the official GDP figures for April to June, which will show how the economy performed before the full effect of any longer disruption. Markets and policymakers will also be watching for signs of progress in any US-Iran talks and for further movement in oil and fuel prices.

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