Britain’s fragile economic recovery is facing its biggest test in years as the conflict between Iran and the United States continues to cast a shadow over global energy markets. Economists at EY have warned that the future of the British economy could depend on events thousands of miles away in the Strait of Hormuz, one of the world’s most strategically important shipping routes. If oil and gas supplies remain disrupted, businesses could face another surge in costs, inflation could accelerate sharply and growth could stall. For households and small firms that have already endured years of rising prices, labour shortages and economic uncertainty, the prospect of another global shock will make deeply uncomfortable reading.
IRAN WAR COULD ‘HALT UK GROWTH’
The Iran war has become the single biggest threat to UK economic stability. EY is warning that Britain faces its biggest economic test in years and the fate of UK growth may depend on whether the Strait of Hormuz reopens.
Our fragile recovery is on a knife‑edge as the Iran war threatens to choke off vital oil and gas supplies and a leading City consultancy says the UK economy could be brought to a standstill if the crisis drags on.
Big Four consultancy EY has warned that the UK’s growth hopes under Prime Minister Andy Burnham and Chancellor John Healey now rest heavily on President Trump’s next decision on the Gulf conflict. The president is saying talks will restart again, but confidence that they will succeed, drains away further each time the start-stop process fails to get positive results.
EY revised its UK growth forecast up to 0.9% for this year, if the Strait of Hormuz reopens and global energy markets stabilise.
If that’s not the case. EY says Britain could be staring down the barrel of zero growth, soaring inflation, and a full‑blown economic shock.
THE WORLD’S MOST DANGEROUS BOTTLENECK
Around a fifth of the world’s oil and gas flows through the Strait of Hormuz and that the narrow Gulf passage is disrupted by the Iran‑US conflict.
EY’s analysts say if the Strait stays closed, UK growth could fall to 0.5% this year and the economy could contract by 0.2% next year. The knock-on effect is that inflation could soar to 6.4% within months, which is a nightmare for households already battling rising bills and for small businesses trying to survive.
MARKETS DON’T BUY IT
On Sunday 2nd August, President Trump suggested a new peace deal with Iran was “close” but investors aren’t convinced. A previous Memorandum of Understanding collapsed within days as strikes by Iran and the US shattered a 60‑day ceasefire. Markets are treating any new promises with heavy scepticism.
BURNHAM & HEALEY FACE A BRUTAL ECONOMIC TEST
Prime Minister Andy Burnham has promised to ease the cost‑of‑living crisis, but EY’s forecast casts a long shadow over those hopes. The Chancellor has admitted that the Government will struggle to stop the squeeze.
Even with stronger‑than‑expected growth in early 2026, Britain remains dangerously exposed.
CONSTRUCTION IN CRISIS
EY singled out construction as a major weak spot:
- Building costs up more than 30% since 2019
- Private‑sector vacancies still above pre‑pandemic levels
- Demand weakening
- Projects delayed or cancelled
Construction is the only major sector where job vacancies remain stubbornly high; a sign of skills shortages, cost pressures, and slowing activity.
This matters because construction is a backbone industry: when it struggles, suppliers, trades, retailers and local economies all feel the pain.
CAN AI SAVE THE DAY?
EY’s analysis suggests agentic AI could help boost productivity across the economy, especially in business services and tech. But analysts warn that AI gains won’t be enough to offset the damage of prolonged energy disruption.
BRITAIN IS BRACED FOR IMPACT
The Iran war has become the single biggest threat to UK economic stability. If the Strait of Hormuz reopens soon, Britain may scrape through with modest growth. If not, EY says the UK could face:
- stalled growth
- rising inflation
- construction slowdown
- higher business costs
- weaker consumer confidence
- pressure on Burnham and Healey’s economic agenda
For now, our economic fate rests on decisions made in Washington and Tehran and everyone is watching nervously.
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