UK Economy on the Brink of Collapse if Hormuz Remains Closed
Internal Treasury modeling shows GDP growth could fall to just 0.3 percent next year if disruptions in the key maritime passage continue through the end of 2026.
Internal Treasury modeling shows GDP growth could fall to just 0.3 percent next year if disruptions in the key maritime passage continue through the end of 2026.
New British Prime Minister Andy Burnham has been warned that the UK economy would barely grow next year if disruptions in the Strait of Hormuz continue through the end of 2026. Internal modeling presented to him and Chancellor John Healey suggests that UK GDP growth in 2027 could be just 0.3 percent, as first reported by Bloomberg.
UK government officials stress that they routinely plan for all possible scenarios. The economy started the year strongly, but growth then stalled as the conflict in the Middle East affected some businesses. The war with Iran has pushed up oil and fuel prices and disrupted supply chains.
Burnham and Chancellor Healey were presented with a reasonable worst-case scenario in which the Strait of Hormuz remains effectively closed for the next five months, with no lasting peace agreement between the US and Iran by the new year. Treasury modeling for this scenario projects UK economic growth of 0.9 percent during 2026, slightly below the Office for Budget Responsibility's (OBR) March forecast of 1.1 percent.
The outlook for the following year is significantly bleaker. The growth projection of just 0.3 percent is well below the OBR's forecast of 1.6 percent for 2027. According to the modeling, inflation would peak at 4.3 percent in the first three months of next year, compared with the current rate of 2.6 percent, which is slightly above the Bank of England's 2 percent target.
The decline in traffic through the Strait of Hormuz is also confirmed by shipping data. According to a report by The Wall Street Journal, the number of vessels crossing the strait daily in July was five times lower than at the start of the conflict. An average of 26 vessels per day managed to pass through the waterway in July, compared with more than 130 vessels per day before the start of the US war against Iran.
The WSJ also notes that on August 11, 14 vessels managed to cross the Strait of Hormuz, 11 of which used the so-called Iranian corridor. US President Donald Trump earlier that day announced that the US military would maintain control over the Strait of Hormuz.
Official data on UK economic growth for the period from April to June will be released on Thursday, August 13. Economists expect growth of 0.4 percent for that quarter. Disruptions in global oil supply could have broader implications for the energy security of European countries, including Croatia, through energy prices and trade flows.
