Prime Minister Andy Burnham has received internal Treasury analysis warning that continued disruption in the Strait of Hormuz could severely constrain UK economic growth next year. The modelling, presented to Burnham and Chancellor John Healey, projects GDP expansion of just 0.3% in 2027 under a worst-case scenario, substantially lower than the Office for Budget Responsibility’s March forecast of 1.6% for that year.
The analysis examines a scenario in which the shipping chokepoint remains effectively closed through the end of 2026 and no permanent US-Iran peace agreement is reached before the new year. Under these conditions, inflation is projected to peak at 4.3% during the first three months of 2027, compared to the current level of 2.6%. For 2026 itself, the Treasury modelling anticipates growth of 0.9%, slightly below the OBR’s 1.1% forecast. Treasury officials stated that such scenario planning represents routine government practice across multiple potential outcomes.
The Middle East conflict has already impacted the UK economy earlier in the year through elevated oil and fuel prices and supply chain disruptions, though the economy started 2026 on stronger footing. Official growth figures for the second quarter are expected to show expansion of 0.4% for the three-month period.
The grim economic projections have intensified pressure on the government ahead of the Budget scheduled for 28 October. Burnham has indicated that existing cost-of-living measures, including VAT removal on domestic electricity and changes to subscription practices, are insufficient without additional support. He has directed Healey to identify further assistance in the Budget, though the chancellor has committed to maintaining “strong fiscal discipline” in spending. The government remains bound by its 2024 manifesto commitments against raising income tax, VAT, or National Insurance contributions, as well as fiscal rules requiring day-to-day spending to balance with tax revenues by decade’s end.
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