The UK economy has officially contracted for the first time in two years, driven by the escalating military standoff with Iran. Treasury sources confirm that a multi-billion-pound emergency stimulus package is being drafted for fast-track approval. The contraction, measured at 0.
3% in the latest quarter, was triggered by a collapse in business confidence and a sharp drop in exports to the Middle East. 'We are in uncharted waters,' a senior Treasury official told me, speaking on condition of anonymity. 'The threat of a prolonged conflict is freezing investment.
' Uncovered documents show the Bank of England has been modelling a worst-case scenario of a 2% GDP drop and 5% inflation spike. The stimulus, reportedly worth £15bn, includes targeted tax breaks for manufacturers and a temporary cut in VAT. But critics warn this is a band-aid on a bullet wound.
'This government is preparing to borrow its way out of a crisis it helped create,' a former economic adviser, now a vocal critic, said. Meanwhile, the conflict shows no signs of de-escalation. The Prime Minister's office declined to comment on the Treasury's plans.
Markets are already pricing in a further downturn.
