The UK economy has slipped into contraction as the escalating conflict with Iran stretches supply chains and drives up energy costs. The Treasury’s latest forecast, leaked to this paper, warns of a prolonged period of instability, with GDP expected to shrink by 0.4% in the second quarter. For households already squeezed by high inflation, the news is a bitter blow.
In working class towns across the North, the war is hitting where it hurts most: the weekly shop and the gas bill. Fuel prices have surged by 12% since the first airstrikes, pushing the average cost of filling a family car above £100. Meanwhile, food inflation, which had been slowly easing, is now back above 8%, driven by disrupted imports of grain and fertiliser from the Black Sea region.
At the Asda in Bolton, mother of three Sarah Connolly told me she is skipping meals to feed her children. “I’m down to one meal a day. The war is adding £30 a week to my shopping. I don’t know how much longer we can go on like this.” Her story is echoed across the country, as food banks report a surge in demand.
The Treasury’s internal document, marked “Official Sensitive”, paints a grim picture. “The economy is now in technical recession,” it states. “The conflict’s impact on global markets, combined with higher defence spending, will depress growth for at least the next two years. Real wages are expected to fall further, and unemployment is forecast to rise by 200,000.” The government has already announced a windfall tax on oil and gas companies, but economists say it is too little, too late.
Union leaders are calling for emergency support. “The government must act now to protect jobs and livelihoods,” said Mary Bousted of the National Education Union. “We cannot have working people paying the price for a war they did not choose.” The TUC is planning a day of action next week, with rallies in Manchester, Liverpool, and Newcastle.
The conflict has also exposed the fragility of Britain’s energy system. Despite the push for renewables, the UK still relies on gas for 40% of its electricity. With Iran threatening to close the Strait of Hormuz, energy prices are expected to remain volatile. The Bank of England is caught between raising rates to curb inflation and the risk of deepening the recession.
In the export sector, firms are feeling the pinch. Sheffield steelmaker Andrew Turner said orders from Europe have dried up. “Our customers are nervous. They’re hoarding cash, not investing. We’ve had to put staff on short hours.” The car industry, already struggling with Brexit red tape, is now facing components shortages due to shipping delays in the Suez Canal.
Regional inequality, already stark, is widening. While London’s economy is forecast to shrink by 0.2%, the North East could see a contraction of 1.1%. “The gap between the south and the rest of the country is becoming a chasm,” said think tank Centre for Cities.
Yet amid the gloom, there are glimmers of solidarity. In Leeds, university students have set up a mutual aid network delivering hot meals to elderly residents. In Glasgow, workers at a defence factory have refused to handle components destined for Iran. “We refuse to profit from war,” said shop steward Dave Miller.
The Treasury’s warning is stark, but for many it is simply confirmation of what they already feel in their pocket. As the conflict grinds on, the question is not whether the economy will recover, but how many ordinary families will be left behind.
