Growth forecasts cut for US and global economy, while UK suffers sharpest downgrade in G7

A further escalation in the Iran war could trigger a global recession, spiralling inflation and a sharp backlash in financial markets, the International Monetary Fund has warned.

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.

In its half-yearly update, the IMF said the UK would suffer the sharpest growth downgrade and joint highest inflation rate in the G7 this year, even if the fallout from soaring energy costs can be contained by the middle of 2026.