250,000 people could lose their jobs by the middle of next year as Britain is left “in the grips of recession” after business confidence was shattered by the US and Israel’s war against Iran, analysis suggests.
Two reports from top accountancy firms have underlined the scale of the economic threat facing the UK, as Chancellor Rachel Reeves summons bank chiefs for talks to stem the impact.
Iran’s retaliatory closure of the Strait of Hormuz trade route and attacks on neighboring countries will send oil and gas prices soaring, causing the biggest economic blow since the coronavirus pandemic, according to economic forecasting group EY Item Club.
A separate Deloitte report found that finance chiefs at Britain’s biggest companies are already reining in their spending plans, taking steps that are likely to weigh on economic activity and employment.
EY Item Club said it expects the UK economy to be flat in the second and third quarters of this year, putting it at risk of recession, defined as two consecutive quarters of recession.
Growth is expected to halve from 1.4% in 2025 to 0.7% this year, curtailing the upward momentum reflected in faster-than-expected gross domestic product growth in February.
EY Item Club also expects nearly a quarter of a million more people to lose their jobs due to the Middle East crisis, with the unemployment rate expected to reach 5.8% by mid-2027, up from the current five-year high of 5.2%.
If this prediction is correct, the number of job seekers will increase from the current 1.87 million to more than 2.1 million.
Matt Swannell, chief economic adviser at the Forecasting Group, said: “Soaring energy costs and supply chain disruptions will push the UK to the brink of a technological recession in the middle of this year.”
“Consumer purchasing power will come under pressure, while more expensive financing arrangements and a less uncertain global economic backdrop will throw cold water on companies’ investment plans.”
Last week’s report from the International Monetary Fund said the UK faces the biggest downward revision in growth among G7 countries, with forecasts for 2026 at 0.8%, down from 1.3% predicted by the IMF in January.
Item Club forecast that inflation would rise to almost 4% in the second half of 2026 (almost double the Bank of England’s 2% target), but also predicted that policymakers on the Bank of England’s Monetary Policy Committee would refrain from raising interest rates unreasonably.
Executives holding the purse strings at British companies are already more pessimistic than ever since the start of the coronavirus pandemic, according to a separate Deloitte report.
According to the CFO survey, CFO confidence fell to a net -57% from March 16 to March 30, down from -13% in the previous quarter.
CFOs reported that geopolitical developments are the biggest external risk to their businesses.
Ian Stewart, chief economist at Deloitte UK, said: “Financial leaders are dealing with high levels of external uncertainty and are focusing on managing risks from geopolitics, rising energy prices and rising funding costs.”
When asked about the impact of adverse geopolitical developments over the next three years, CFOs’ top three concerns were energy costs (61%), inflation and interest rates (61%), and increased cyberattacks (60%).
The Iran crisis will have an immediate impact on energy costs, potentially affecting inflation and interest rates.
The United States has also reported an increase in Iran-related cyberattacks against U.S. critical infrastructure.
CFOs are reacting to heightened risks by pivoting to more defensive financial strategies, signaling reductions in spending plans that support EY’s assumptions about a broader slowdown in economic growth.
Cost control and cash reserves are at the top of the priority list, while expectations for capital spending and hiring have waned.
“Rarely in the last 16 years have UK CFOs been as focused on cost control as they are today,” Mr Stewart said.
“This challenging environment is causing CFOs to scale back their margin expectations and focus on cost reduction and cash preservation. The immediate priority for finance leaders is to strengthen balance sheets in the face of external headwinds.”
#quarter #million #people #lose #jobs #mid2027 #due #stoking #recession #analysis