Reeves warns Iran war will hit UK hardest, urges de-escalation

Rachel Reeves said the US-Israeli war against Iran was a "mistake" and warned that Britain could pay the steepest economic price among major advanced economies.

The chancellor said the conflict had not made the world safer and argued that the best economic policy was to de-escalate. Asked about tensions with Washington, Reeves said "friends are allowed to disagree" and added that the UK and US still had a "very good relationship". Her comments landed as pressure builds across the Atlantic, with Donald Trump publicly urging allies to back the campaign while Keir Starmer has refused to be drawn into the fighting.

The British government has already said it will not play any role in a US military blockade of the Strait of Hormuz, a chokepoint for global energy flows. That stance reflects a wider concern in London that the conflict could feed directly into higher energy costs, slower growth and weaker household finances at home.

Reeves’s warning came alongside the International Monetary Fund’s latest World Economic Outlook, which cut UK growth for 2026 to 0.8% from 1.3% in January. The IMF said Britain faced the sharpest downgrade among major advanced economies because of the war. It also forecast UK unemployment would rise to 5.6% this year from 4.9% in 2025, while saying inflation would be higher. Earlier estimates suggested UK inflation could reach 3% if oil and gas prices stay elevated.

The IMF said the UK is especially exposed because it is a net importer of gas, leaving the economy more vulnerable than energy exporters if prices spike again. In a severe conflict scenario, the fund warned, global growth could be knocked down by 1.3 percentage points in 2026, bringing the world close to recession.

Reeves acknowledged that the war had already damaged oil and gas facilities in the Middle East and said the economic fallout would outlast any short-lived ceasefire. Even if the fighting ends quickly, she said, there would still be longer-term economic impacts. Her remarks sharpened the case that this conflict is not just a security test for the Middle East, but a direct stress test for Britain’s growth outlook and for the resilience of the wider global economy.