The International Monetary Fund has warned that a further escalation in the Iran war could trigger a global recession, fuel spiralling inflation and provoke a sharp backlash in financial markets.
The Washington-based lender said the economic damage from the Middle East conflict was steadily increasing as it cut its growth forecasts for 2026, citing the impact seen so far from the war.
The warning comes against an increasingly volatile backdrop for the world economy, with the IMF pointing to the possibility that further instability in the region could deepen pressures already affecting trade, prices and market sentiment.
In the UK, the outlook has worsened particularly sharply. The IMF said Britain faces the steepest downgrade in its forecasts and is now expected to have the joint highest inflation rate in the G7. The revision adds to concerns over the country’s growth prospects at a time when the wider global environment is becoming more uncertain.
The fund’s assessment suggests that the consequences of the conflict are no longer limited to the region itself. Instead, the IMF is warning that continued escalation could spread through energy markets, financial systems and consumer prices, creating broader risks for the global economy.
Oil prices are among the most immediate areas of concern, with any worsening of the conflict likely to intensify volatility. That, in turn, could feed into higher inflation and weaker growth across multiple economies, particularly if the disruption persists.
The IMF’s latest view adds pressure to policymakers already dealing with a fragile international outlook. A recession triggered by conflict-related shocks would pose serious challenges for governments and central banks, which may be forced to balance efforts to support growth against the need to contain price rises.
The warning was issued as the fund reduced its 2026 forecasts on the basis of the war’s effects so far, signalling that even without further escalation, the conflict is already being felt in the economic outlook.
For now, the IMF’s message is clear: if the Iran war deepens further, the consequences could extend well beyond the Middle East, with global growth, inflation and market stability all at risk.
