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Rachel Reeves has been handed a triple hammerblow, after the IMF downgraded the UK’s economic growth forecasts and warned of soaring inflation and unemployment. The influential financial body said Britain would be hit particularly hard by fallout from the Iran war, which threatens to trigger a global recession.

It comes as a devastating blow for the beleaguered Chancellor, after a tumultuous two years in the job which has seen the economy struggle. In a further humiliation, Britain’s downgrade is the biggest of all G7 nations. The International Monetary Fund laid out its first set of forecasts since the global economy was rocked by the conflict unleashed by Donald Trump and Israel on Iran at the end of February.

Oil and gas prices surged higher in the following weeks, with energy production and transport impacted by attacks on facilities and the blockade of the Strait of Hormuz.

In its latest economic outlook, the IMF said UK economic growth will be weaker than previously expected as a result.

It said gross domestic product (GDP) is set to grow by just 0.8% in 2026, with this improving to 1.3% in 2027.

However, as recently as January, the IMF had predicted 1.3% growth in 2026 and 1.5% in 2027.

The UK economy grew by a lacklustre 1.4% last year.

Forecasts also showed that UK inflation – which reflects the increase in the price of goods and services – is expected to average 3.2% this year and 2.4% in 2027.

Previous forecasts had pointed towards 2.5% inflation for 2026, indicating that it would drop to the 2% target level in 2027.

Experts expect higher energy prices, more expensive fuel and increased food inflation to contribute to elevated inflation following the conflict.

Petrol prices have already risen 19% since the conflict started, with costs of diesel rising by more than a third.

Unemployment is also expected to worsen further, with the IMF predicting it will rise to 5.6% in 2026 from 4.9% last year.

Shadow Chancellor, Sir Mel Stride said his opponent has failed to strengthen the economy during her time at the Treasury.

He said: “Being handed the biggest downgrade in the G7 is a clear verdict on Rachel Reeves’ choices – and she’s got no one to blame but herself.

“The Chancellor hiked national insurance in her first budget, doubling inflation and sending unemployment soaring.

“She is driving the hospitality industry out of business with business rates increases, and planning the first hike in fuel duty in 15 years.

“Her ‘plan’ to keep costs down has left us with the highest inflation in the G7, with businesses closing and the cost of living skyrocketing.

“The Conservatives urge international partners to see Rachel Reeves as a cautionary tale of what happens when a politician has no clue what they’re doing and chooses to hammer business relentlessly.”

Reform’s economic spokesman Robert Jenrick said: “The British people are paying the price for Rachel Reeves’ incompetence. The Chancellor hiked taxes to record levels and doubled down on net zero madness, leaving us uniquely exposed.

“The Government is coining it in while families struggle. If Reeves wanted to help working people she would abolish VAT and green levies to lower energy bills by £200, and halve VAT at the pumps to give motorists some relief.”

Ms Reeves and the Bank of England’s Andrew Bailey are due in Washington later for the latest IMF annual meeting.

The IMF said in its outlook that “the global economy is threatened with being thrown off course” by the outbreak of war.

IMF economic counsellor Pierre-Olivier Gourinchas said in a foreword alongside the latest report that the global outlook has “abruptly darkened”, knocking the global economy off a steady growth trajectory.

He added: “The closure of the Strait of Hormuz and serious damage to critical production facilities in a region central to global hydrocarbon supply could cause an energy crisis on an unprecedented scale.”

The IMF said a severe scenario for the conflict over the coming months would mean that global growth would be reduced by 1.3 percentage points in 2026.

“This would mean a close call for a global recession (growth rate below 2%), which has happened only four times since 1980, with the latest two occasions corresponding to the global financial crisis and the Covid-19 pandemic,” according to the report.