An economic forecast from the EY Item Club suggests Britain will ”flirt with a recession” and warns unemployment could rise to 5.8 per cent.
Hundreds of thousands of Brits could lose their jobs within a year, new analysis shows.
Picture:
Alamy
A quarter of a million people could lose their jobs by next year amid fears of a looming recession sparked by the Iran war, an analysis has found.
Two reports from top accounting firms suggest the economy is on the brink as gas and oil prices surge following Tehran’s blockade on the Strait of Hormuz.
An economic forecast from the EY Item Club suggests Britain will ”flirt with a recession”, and warns unemployment could rise to 5.8 per cent.
That’s up from the current five-year high of 5.2 per cent.
If correct, it would see the number of jobseekers surge from 1.87 million to more than 2.1 million.
However, EY Item Club also predicted that interest rates will remain on hold throughout 2026 despite soaring inflation caused by the war.
A separate report by Deloitte found finance bosses at big UK businesses were already watering down spending plans, with action set to impact economic activity and hiring.
Read more: UK economy grew unexpectedly by 0.5% in February, latest figures show
Read more: Reeves warns impact of Iran war on economy will persist once hostilities end
The Strait of Hormuz has been blocked amid the Iran war – disrupting oil shipments.
Picture:
Getty
The forecasters warn the major disruption to supply chains and rocketing energy costs could push Britain to the brink of a “technical recession”.
Susannah Streeter, chief investment strategist at Wealth Club, said: “There’s a fresh warning about the stark impact of the war in Iran on the UK economy.
“The closely watched economic forecast from the EY Item Club estimates that Britain will flirt with a recession, and that unemployment is set to rise to 5.8 per cent, up from the current five-year high of 5.2 per cent.
“Although the UK economy was in a more resilient shape than expected in February, with growth coming in at 0.5 per cent, there is real concern that the UK will be hit hard by the repercussions of the Middle East conflict.
“Company insolvencies in March have already jumped markedly compared to last year, and profit warnings are coming thick and fast.”
She added that companies are set to be hit by the “triple whammy” of higher energy bills, suppliers passing on higher costs, and consumers “tightening their belts”.
“Plus, there’s huge uncertainty ahead about where interest rates could go, with hopes for rate cuts replaced by expectations of a rate hike instead this year,” she added.
Chancellor Rachel Reeves.
Picture:
Getty
It comes after Chancellor Rachel Reeves has vowed to expand support for energy-intensive industries.
But Ms Streeter warned: “The outlook looks difficult for others, especially in consumer-focused sectors faced with a barrage of bills and weakening demand.
“Firms are battening down the hatches in this unpredictable climate, with hiring set to soften. “A separate survey by Deloitte has highlighted this, showing finance chiefs are reining in their spending plans.”
Matt Swannell, EY Item Club’s chief economic adviser, said: “Spiralling energy costs and disruption to supply chains will push the UK to the brink of a technical recession in the middle of this year.
“Consumers’ spending power will be squeezed, while more expensive financing arrangements and a less certain global economic backdrop will pour cold water on companies’ investment plans.”
It follows a gloomy economic outlook report from the International Monetary Fund (IMF) last week showing the UK facing the biggest downgrade to growth among the G7 group of countries, with 0.8 per cent forecast for 2026, down sharply from the 1.3 per cent predicted in January.
But recent figures showed the UK economy had stronger-than-first thought momentum before the Iran war impact, with data showing GDP grew by 0.5 per cent month-on-month in February – the fastest expansion since January 2024.