Guerra de Irán dañando la economía global mientras comienza la reunión del FMI; el petróleo cae en esperanzas de paz

Q: Why is the UK's downgrade bigger than other major economies?

There are two main reasons, replies IMF chief economist Pierre-Olivier Gourinchas:

Firstly, of course, the war in the Middle East – the jump in energy prices hurts the UK as it is “highly reliant†on gas for its energy mix.

Gourinchas explains:

Now a lot of this gas is produced domestically, but there is still a part of it that is imported. And, the part is imported is at market prices. It's much more expensive. And that sets the price for energy in the UK in an environment in which, gas reserves are relatively low, when you compare them to other European countries.

So there is more of a pass through of gas prices into wholesale prices of energy, even if households are protected temporarily because there are there are some measures in place.

Secondly, the UK economy had a “relatively weak performance†in the second half of 2025, so there is a ‘carryover effect' into 2026.

Q: Do you fear the UK could fall into a wage-price spiral again?

Gourinchas argues that the UK economy still has a negative output gap, which is moderating some wage pressures.

He says:

Right now there is little evidence that there are strong wage pressures in the UK economy and therefore our estimates of core inflation are not increasing too much.

The IMF downgrade is a fresh blow to Chancellor Rachel Reeves and the government's “elusive search for growthâ€, says Susannah Streeter, chief investment strategist at Wealth Club:

The UK is set to be battered by hot oil prices, an energy bill crisis and a tightening of consumer spending. The economy was already flatlining even before war erupted in the Middle East, and now there is little means of resuscitation available given that interest rates look set to ramp up to curb inflation.

Hopes of fresh talks to find a resolution to the conflict are providing a balm of sorts. One to two interest rate increases are now being priced into financial markets instead of the scary three to even four hikes temporarily forecast, but it's still going to be tough going ahead if borrowing costs rise further.

Plans for a big bang of home construction with 1.5 million new dwellings targeted by the government have turned into more of a whimper. Property companies have scaled back ambitions as the Middle East crisis has hurt demand, and high uncertainty lingers. The government's latest lever to pull is a closer relationship with Europe, but a deal on accepting single market rules will take time to be agreed, so it won't nudge growth forward any time soon.

As companies batten down the hatches and try to wait for the storm to pass, investment plans are being trapped. The UK is stuck in a stagflation scenario and risks of a recession are rising fast.’'

The energy shock from the Iran war is as severe as the 1974 oil price shock, the IMF says, but the world economy is in better shape to cope.

Pierre-Olivier Gourinchas, chief economist at the IMF, tells today's press conference that if the conflict were to stop today, the oil shortfall for the year would be comparable to the shock from the 1970s in terms of how much oil has been withdrawn from the market on an annual average basis.

He says:

So, the shock is comparable to the 1974 oil price shock.

But, there are important differences, Gourinchas says:

The first one is that the global economy is much less oil dependent now than it was back then, and it is much more efficient in terms of how much it needs oil to produce GDP.

Secondly, back in the ‘70s, central banks were focused on supporting activity rather than reining in inflation. “That led to macroeconomic instability,â€Gourinchas explains.

The Middle East and North Africa region is expected to have a sharply slower growth this year as oil-exporting countries grapple with the fallout from the Iran war, the International Monetary Fund has predicted today.

The region's real GDP growth forecast was slashed to 1.1% in the IMF's latest World Economic Outlook, 2.8 percentage points lower than its January projection.

Growth across the region is expected to rebound to 4.8% in 2027.

Iran's economy is forecast to shrink by 6.1% in 2026, followed by 3.2% growth in 2027. Before the war, it was expected to expand 1.1% this fiscal year.

The IMF also has advice for policymakers on how to handle the Iran war shock.

Pierre-Olivier Gourinchas, chief economist at the IMF, tells reporters at the Fund's annual meeting that monetary and fiscal policy should be ready to pivot to support the economy and safeguard the financial system.

Central banks ‘must be attentive to risks' and communicate that they are ready to act decisively to maintain price stability. But at the same time, they are facing a “negative supply shock. And no central bank can influence global energy prices on its ownâ€, Gourinchas points out.

And how about finance ministers?

Gourinchas warns that fiscal space is much thinner than before. And he urges governments to deploy ‘targeted and temporary measures', rather than wider-ranging support.

He says:

Price caps, subsidies, and similar interventions are popular, but they distort prices. They're often poorly designed, hard to unwind, and extremely costly. Most countries don't have that luxury anymore, where support for the most vulnerable is needed.

War in the Middle East has halted the world economy's momentum this year, says Pierre-Olivier Gourinchas, chief economist at the IMF.

He is warning that the Iran war has darkened the global economic outlook, as the Fund presents its latest economic forecasts.

Despite major trade disruptions and policy uncertainty, last year ended on an upbeat note, Gourinchas tells journalists in Washington DC.

Gourinchas says:

The closing of the Strait of Hormuz and serious damage to critical facilities in a region central to global hydrocarbon supply raise the prospect of a major energy crisis should hostilities continue.

The IMF has also warned that a further escalation in the Iran war could trigger a global recession, spiralling inflation and a sharp backlash in financial markets.

Against an increasingly volatile backdrop, the Washington-based fund said the economic damage from the Middle East conflict was steadily rising as it cut its growth forecasts for 2026 based on the impact from the war so far.

Under a worst-case “severe scenario,†involving a drawn-out war and persistently higher energy prices, it said the world would face “a close call for a global recession†for only the fifth time since 1980.

Here's the full story from my colleague Richard Partington, who's at the Spring Meeting in Washington DC:

Chancellor of the Exchequer, Rachel Reeves, has responded to the IMF's growth downgrade:

“The war in Iran is not our war, but it will come at a cost to the UK. These are not costs I wanted, but they are costs we will have to respond to. I have vowed that my economic approach to this crisis will be both responsive to a changing world and responsible in the national interest, keeping inflation and interest rates in check to protect households and businesses.

“We entered this conflict in a stronger position because of the choices this government took to build economic stability, but there is more to do. That is why we are strengthening Britain's energy security, backing British industry and protecting households, to build a Britain that is stronger, more resilient, and prepared for the future.â€

Newsflash: The International Monetary Fund has cut its forecast for UK growth this year and in 2026, as the Iran war hurts the global economy.

The UK has been hit by the sharpest growth downgrade in the G7 in the IMF's new economic forecasts, just released, at its spring meeting in Washington DC.

UK GDP is now expected to rise by just 0.8% this year, down from a previous forecast of 1.3% – a bigger downgrade than other major economies.

The UK's growth forecast for next year has been cut from 1.5% to 1.3%.

The Fund says:

In the United Kingdom, the war and a slower pace of monetary easing mean that growth is projected to decline from 1.3 percent in 2025 to 0.8 percent in 2026, a downward revision of 0.5 percentage point relative to the October 2025 forecast.

Growth is projected to recover to 1.3 percent in 2027, slower than expected before the war as the impact of higher energy prices linger.

In a blow to households, IMF economists also predict inflation will rise towards 4%.

But, inflation is then expected to return to target by the end of 2027 as the effects of higher energy prices fade and a weakening labour market puts downward pressure on wage growth.

US producer price inflation has hit its highest level in almost three years, due to the surge in energy costs.

The US PPI index, which measures prices ‘at the factory gate', rose by 4% in the 12 months to the end of March, the largest increase since February 2023.

Prices for energy jumped in the month – the first since the Iran war began – by 8.5%, including a sharp move higher in motor fuel.

The US Bureau of Labor Statistics explains:

Nearly half of the March advance in the index for final demand goods is attributable to a 15.7% rise in gasoline prices.

The indexes for diesel fuel, jet fuel, home heating oil, meats, and primary basic organic chemicals also increased. Conversely, prices for fresh and dry vegetables fell 10.7%.

The International Monetary Fund is due to release its latest World Economic Outlook in 40 minutes.

The report is expected to show much higher (than before) inflation forecasts and a notable downgrade to economic growth, says Professor Costas Milas, of the University of Liverpool's management school.

The IMF, however, and in sharp contrast to the Pope, is unlikely to be critical of the US intervention in Iran and the resulting economic damage.

After all, the US exerts much bigger influence on IMF than any other country with a 17.42% quota (which reflects the relative financial contribution of the US to the IMF) and a 16.49% share in votes.

Amazon.com has secured an $11.57bn deal to buy satellite operator Globalstar, to accelerate the rollout of its satellite operation, Leo.

The deal will allow Amazon Leo to add direct-to-device (D2D) services to its low Earth orbit satellite network and extend cellular coverage to customers beyond the reach of terrestrial networks, the company explains.

Amazon says acquiring Globalstar's network of non-geostationary orbit (NGSO) satellites is part of its “long-term vision for space-based connectivityâ€.

It will help Amazon to challenge Elon Musk's Starlink satellite network.

Panos Panay, Senior Vice President of Devices & Services at Amazon, says:

“By combining Globalstar's proven expertise and strong foundation with Amazon's customer-obsession and innovation, customers can expect faster, more reliable service in more places—keeping them connected to the people and things that matter most.â€

Greenpeace have calculated that the UK has commissioned enough wind and solar this year to generate ten times as much electricity than the fossil fuel it imports through the Strait of Hormuz.

It says:

Calculation: Gas coming through Hormuz would generate 4.2TWh of power. Offshore wind from renewables auction 36.0TWh, solar 5,15TWh, onshore wind 4.1TWh.

Total wind and solar is 45.25TWh, which is 10.8x more than the 4.2TWh that the Hormuz gas would generate.

According to the government, only about 1% of the UK's gas supply in 2025 came from Qatar – more comes from North Sea production, pipelines with Norway, interconnectors with continental Europe and three LNG terminals.