NIESR cuts UK growth forecast, warns Iran war will keep inflation above target until 2028

NIESR sharply downgraded its UK outlook, cutting 2026 GDP to 0.9% (from 1.4%) and 2027 to 1.0%, and forecasting inflation to rise from 3.3% to about 4.1% by early 2027 due to higher oil and gas prices from the Iran war. The institute expects the Bank of England to hike once in July to 4% (from 3.75%), but warns that a prolonged conflict could trigger recession risk in H2 2026 and force a much larger 150bp tightening to 5.25%. Market implication for GBPUSD: heightened volatility as potential BoE tightening could support the pound, while weaker growth and recession risk pose downside — overall near-term pressure on the currency amid policy uncertainty.