The ongoing Iran war could "halt growth" in the UK economy, with the success of Andy Burnham and John Healey's economic management depending heavily on President Trump's decision-making, according to a warning from Big Four consultancy EY.

EY revised its UK growth forecast upward to 0.9 per cent for this year, suggesting the economy may perform better than initially expected. However, economists at the firm cautioned that this baseline projection depends on the reopening of the Strait of Hormuz, through which roughly a fifth of global oil and gas supplies as well as critical goods transit from the Gulf region. The narrow shipping lane between Iran and Oman has long been regarded as one of the world's most critical energy chokepoints, and its disruption would ripple through global supply chains already strained by years of geopolitical instability.

EY analysts stated that "prolonged energy price disruption may halt growth in 2027." Under an alternative scenario in which disruption persists through mid-2027, growth would slow to 0.5 per cent this year and the economy would contract by 0.2 per cent next year.

While inflation is on track to approach 3.5 per cent by year-end under baseline conditions, EY's adverse scenario indicated that inflation could surge to 6.4 per cent within a matter of months. Such an outcome would echo the inflationary surges seen during earlier energy crises, when wholesale gas price spikes rapidly fed through to consumer prices and squeezed household budgets across the country.

On Sunday morning, President Trump indicated that a new peace deal with Iran was close to being finalized, fueling hopes that the global economy might avoid the most severe consequences of the conflict. However, investors and policymakers may view any such declarations from Trump or Iranian leaders with skepticism, given that a previous Memorandum of Understanding collapsed rapidly after strikes by both Iran and the United States shattered a 60-day ceasefire.

UK Economy to Face 'Test' This Year

EY's forecasts have cast doubt over Andy Burnham's optimism regarding the UK economy and his efforts to ease the cost-of-living burden on businesses and households.

On Sunday, Chancellor John Healey acknowledged that the government "can't completely stop the squeeze" confronting businesses and families in the months ahead.

Peter Arnold, EY's chief economist in the UK, noted that recent volatility in oil and gas prices would once again "test" the country's resilience to economic shocks, even though growth exceeded expectations during the first half of the year. The UK has faced a series of overlapping economic disruptions in recent years, including the pandemic aftermath and energy market turbulence triggered by earlier geopolitical conflicts, making each new shock cumulatively harder to absorb.

Arnold added that the UK would depend on the technology sector and certain business services to drive growth, while construction remains a "concern" due to escalating costs, which have surged by more than 30 per cent since 2019.

According to EY's analysis, vacancies in construction are the only private sector category that has remained above pre-pandemic levels, as job postings have declined across both manufacturing and services.

The consultancy's analysis also suggested that agentic AI could help enhance productivity across the broader economy.