Britain’s small and medium-sized businesses are bracing for one of the most punishing periods since the pandemic, as the fallout from the Middle East oil shock threatens to push the UK economy to the brink of a technical recession within weeks.
The Item Club, the influential economic forecasting group, now expects the UK to “flirt” with recession through the second and third quarters of the year, with GDP growth halving to just 0.7 per cent in 2026, down from 1.4 per cent last year. Growth in 2027 is pencilled in at a “still-below-par” 0.9 per cent, a grim backdrop for owner-managed businesses already contending with tighter margins and nervous customers.
The trigger is the closure of the Strait of Hormuz, the chokepoint through which roughly a fifth of the world’s oil passes. The International Energy Agency has described the disruption as the largest supply shock in the global oil market’s history. Shipping through the strait remained at a standstill on Sunday after Tehran reasserted control of the waterway, with Donald Trump and the Iranian regime accusing one another of breaching the ceasefire struck in the wake of February’s US-Israeli strikes.
The American president accused Iran of a “total violation” after reports of fire being directed at vessels near the strait, and repeated his threat to target Iranian bridges and power infrastructure unless Tehran accepts Washington’s terms. Brent crude fell roughly 9 per cent to below $90 a barrel on Friday after Iran signalled it would reopen the waterway, which has been effectively closed since the 28 February attacks.
For British SMEs, many of whom still carry the scars of the post-Ukraine energy crisis, the implications are stark. Matt Swannell, chief economic adviser to the Item Club, said: “Consumers’ spending power will be squeezed, while more expensive financing arrangements and a less certain global economic backdrop will pour cold water on companies’ investment plans.”
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