Almost 250,000 people could lose their jobs by the middle of next year as Britain “flirts with recession,” according to new economic analysis, as the Iran war’s disruption to global energy markets and supply chains causes the biggest economic hit to the UK since the Covid-19 pandemic.
Twin reports from two of Britain’s leading accounting and advisory firms have underlined the severity of the economic threat facing the country, as Chancellor Rachel Reeves summoned bank chiefs for emergency talks aimed at containing the fallout.
The EY Item Club – one of the UK’s most closely watched economic forecast groups – said it expected the British economy to flatline in the second and third quarters of 2026, leaving the country at risk of a technical recession, defined as two successive quarters of contraction. Annual growth is projected to halve from 1.4% in 2025 to just 0.7% this year, wiping out the economic momentum that had been reflected in February’s better-than-expected GDP figures.
The jobs forecast
The unemployment picture painted by EY is stark. The group expects the jobless rate to rise from the current five-year high of 5.2% to 5.8% by the middle of 2027 – an increase that, if realised, would mean almost 250,000 more people out of work. That would push the total number of jobseekers from approximately 1.87 million today to more than 2.1 million.
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.”
Business confidence at pandemic lows
A separate report from Deloitte found finance bosses at Britain’s largest businesses already taking defensive action – cutting spending plans and building up cash reserves in a move that is itself likely to deepen any economic slowdown.
The Deloitte CFO survey found confidence among chief financial officers had collapsed to a net -57% between 16 and 30 March – down from -13% in the previous quarter – leaving business sentiment at its most pessimistic since the start of the Covid-19 pandemic.
Geopolitical developments were identified as the greatest external risk to businesses, cited by the vast majority of respondents. When asked about their top concerns over the next three years, energy costs and inflation and interest rates were each cited by 61% of CFOs, while an increase in Iran-affiliated cyber-attacks on critical infrastructure was flagged by 60%.
Ian Stewart, chief economist at Deloitte UK, said: “Rarely in the last 16 years have UK CFOs been more focused on cost control than today. This challenging environment is prompting CFOs to scale back expectations for margins and sharpen their focus on cost reduction and cash conservation. The immediate priority for finance leaders is to strengthen balance sheets in the face of external headwinds.”
Capital spending and hiring plans have been cut across the board. The combination of reduced business investment and falling consumer spending power creates a feedback loop that economists warn could prove self-reinforcing if the Strait of Hormuz crisis is not resolved quickly.
The inflation threat
EY expects inflation to rise to almost 4% in the second half of 2026 – nearly double the Bank of England’s 2% target – as higher energy costs feed through into prices across the economy. The group nonetheless predicted that Bank of England policymakers would hold off from knee-jerk interest rate increases, recognising that the inflation is supply-driven rather than demand-driven and that raising rates risks pushing an already vulnerable economy into a deeper downturn.
The prediction presents the Bank of England’s monetary policy committee with one of its most challenging decisions in years: whether to raise rates to contain inflation driven by an external energy shock, or hold them to protect an economy already teetering on the edge of recession.
The international picture
The UK’s economic pain is not unique, but it is disproportionate. Last week the International Monetary Fund published its spring forecasts showing the UK facing the biggest growth downgrade among the G7 group of nations, with growth now forecast at 0.8% for 2026, down from the 1.3% projected in January. The IMF has also warned that a worldwide recession could be on the cards if the Hormuz crisis is not resolved and the conflict were to re-escalate.
Britain’s particular vulnerability stems from several factors. It is highly exposed to global gas markets because successive governments chose not to invest in significant gas storage capacity. It has a large service sector, including financial services, that is sensitive to global confidence. And it entered the Iran crisis already carrying the structural weight of Brexit’s long-run trade friction.
What the government is doing
Rachel Reeves convened an emergency meeting with the chief executives of Britain’s major banks to discuss how to contain the economic fallout. The government has already extended the UK’s North Sea oil and gas licences in a limited way to ease supply pressures, and has been working to build an international coalition – alongside France – to reopen the Strait of Hormuz through a peaceful multinational navigation mission.
Reeves has been publicly and explicitly critical of Washington’s approach. She has described herself as “frustrated and angry” at the US decision to launch strikes “without a clear idea of objectives” and condemned what she called the “folly” of actions whose financial consequences are now being borne by British workers, households and businesses.
![CHANCELLOR RACHEL REEVES: There's nothing that women can't do. [YouTube]](https://thedailybritain.co.uk/wp-content/uploads/2026/04/rachelreeveswomeninparliament-1024x740.jpg)
That frustration has diplomatic limits – Britain remains dependent on American intelligence sharing, nuclear cooperation and the broader security architecture. But it has given the Chancellor an unusual degree of political permission to name the cause of the damage being done to the British economy without the usual diplomatic hedging.
The message from both the EY and Deloitte reports, however, is that the economic damage is no longer theoretical. It is being measured in cancelled investment plans, shelved hiring rounds and the early signals of a labour market beginning to soften under the pressure of an energy shock that has no clear end date.
