The International Monetary Fund warned Tuesday that a prolonged war between the United States and Iran could push the world economy into its fifth recession since 1980, as the fund cut growth forecasts across the Group of Seven and handed Britain the sharpest downgrade of any advanced economy.

Releasing its half-yearly World Economic Outlook as finance ministers gathered in Washington, the fund said the fallout from the Middle East conflict was already hitting households through higher energy prices and would deepen if fighting drags on. Under its central reference forecast, global growth slows from 3.4 percent last year to 3.1 percent in 2026, with headline inflation climbing to 4.4 percent. Under a severe scenario, growth collapses to roughly 2 percent, a level the IMF treats as equivalent to a worldwide recession.

Britain takes the biggest hit

The fund cut its 2026 UK growth forecast by half a percentage point to 0.8 percent, from the 1.3 percent it had penciled in before hostilities began in January. It attributed the downgrade to the war, fewer expected interest-rate cuts and the lingering drag from higher energy costs. UK inflation is projected to climb toward 4 percent this year before returning to the Bank of England's 2 percent target by the end of 2027.

The United States fared better. The IMF trimmed its 2026 US growth forecast by 0.1 percentage points to 2.3 percent, citing the hit to households from higher pump prices. The Labor Department reported Friday that consumer prices rose 3.3 percent in the 12 months through March, with gasoline up 21.2 percent from February alone.

Three scenarios, one chokepoint

The outlook sketches three paths, all hinging on the Strait of Hormuz. The reference case assumes disruption fades by mid-2026. An adverse scenario, with oil averaging $100 a barrel this year before falling to $75 in 2027, cuts global growth to 2.5 percent and lifts inflation to 5.4 percent. The severe scenario keeps oil above $110 into 2027, pushes inflation past 6 percent and forces central banks to raise rates to prevent price increases from becoming entrenched.

Brent crude traded at $98.50 a barrel on Tuesday, down 0.9 percent, after jumping back above $100 on Monday as the US Navy began enforcing a blockade of Iranian ports at the strait. Weekend talks in Islamabad between US and Iranian negotiators ended without an agreement.

A call for a coordinated response

Pierre-Olivier Gourinchas, the IMF's chief economist, said the damage was already mounting. "Despite the recent news of a temporary ceasefire, some damage is already done, and the downside risks remain elevated," he said.

British Chancellor Rachel Reeves, due in Washington late Tuesday, plans to use the spring meetings to press for a coordinated response and to outline targeted, temporary support for UK businesses. "The war in Iran is not our war, but it will come at a cost to the UK," Reeves said in response to the report. "These are not costs I wanted, but they are costs we will have to respond to."

The fund urged governments to resist untargeted relief measures, citing high debt levels across most major economies. "Untargeted measures -- price caps, subsidies, and similar interventions -- are popular," Gourinchas said. "But they are frequently poorly designed and costly."

The counterargument

Britain's opposition rejected the framing that the war alone explains the downgrade. Shadow Chancellor Mel Stride said Reeves had "no one to blame but herself" for the size of the revision, pointing to increases in employers' National Insurance and business rates. "Her 'plan' to keep costs down has left us with the highest inflation in the G7, with businesses closing and the cost of living skyrocketing," he said.

The IMF itself cautioned that central banks risk compounding the damage if they tighten too aggressively. "Reacting strongly to flexible commodity prices, when supply constraints are present only in the related sectors, brings down inflation fast but risks a recession later," the fund wrote.

Global growth has dipped below the 2 percent recession threshold only four times since 1980, most recently during the pandemic in 2020 and after the 2008 financial crisis. Whether 2026 becomes the fifth, the IMF said, depends less on monetary policy than on how quickly the guns fall silent in the Gulf.