If you thought 2025 was rough, buckle up - because Britain may be heading into an economic storm not of its own making. According to the National Institute of Economic and Social Research (Niesr), the UK is facing a £35 billion economic hit from the fallout of the Iran war, with recession now a genuine risk for 2026, as reported by The Guardian.

Yes, you read that correctly. The best-case scenario still involves the UK economy growing at a significantly slower pace both this year and in 2027. Because apparently when the Middle East catches fire, Britain tends to catch smoke.

So what exactly is going on?

Niesr, one of the UK's most respected economic research bodies, has laid out a stark picture of how the ongoing conflict involving Iran is rippling outward into global markets and landing squarely on Britain's doorstep. The thinktank's warning lands at a particularly uncomfortable time for Prime Minister Keir Starmer's government, which is already navigating a challenging economic environment.

The £35bn figure represents the scale of the potential damage to the UK economy - not a minor rounding error, but a serious dent in growth projections that will have real consequences for public finances, business investment, and the wallets of ordinary people.

Recession: from scary word to plausible outcome

Recession talk has a way of being either catastrophically overblown or frustratingly under-discussed. In this case, Niesr isn't screaming fire in a crowded theatre - they're calmly pointing out that the theatre has a suspicious amount of smoke coming from the ceiling.

Under even optimistic modelling, economic growth in the UK takes a notable hit through 2026 and into 2027. Under less optimistic scenarios, the UK could slip into negative growth territory - the technical definition of recession - within 2026 itself.

Starmer's government caught in the crossfire

This is genuinely bad news for a Labour government that came to power promising economic stability and growth. Geopolitical shocks don't really care about your electoral mandate, and an Iran-driven energy and trade disruption adds pressure to an administration that was already managing tight fiscal headroom and sluggish productivity.

The government has not yet formally responded to Niesr's projections at the time of writing.

The bottom line

Britain didn't start this war. Britain isn't fighting in this war. But Britain - like much of the global economy - may end up paying a hefty bill for it anyway. Whether policymakers have the tools and the political will to cushion the blow remains to be seen.

For now, Niesr has fired a warning flare. Whether anyone in Westminster catches it is another matter entirely.