Market News

Britain’s economic growth is set to halve this year as the energy crisis triggered by war in Iran drives up inflation and delays interest rate cuts.

UK gross domestic product (GDP) is expected to rise by just 0.7pc this year, according to new figures from KPMG, slowing from 1.3pc last year.

Yael Selfin, KPMG chief economist, said the forecasts for weaker growth reflected the “hit from the impact of higher energy prices”, which would weigh on household spending and lead to fresh cost pressures.

The warning came as analysts said the conflict in the Middle East was entering a “new and very dangerous phase” that could drive oil prices to fresh record highs.

Donald Trump’s threat to “obliterate” Iran’s power plants unless the Strait of Hormuz was reopened by Monday night prompted Iran to warn that it could “irreversibly destroy” energy infrastructure across the Middle East.

The threat to attack oil and gas facilities in the Middle East rattled financial markets, given the region’s importance to global supplies.

Analysts from Citi have warned that oil could hit $200 if Tehran conducts “broad energy infrastructure attacks”.

Oil prices rose by almost 1pc to break above $113 a barrel in early trading in Asia on Monday before later falling back down.

Goldman Sachs said Brent crude was likely to “exceed its 2008 all-time high” of $147 if disruption continued.

Neil Wilson, a strategist at Saxo, said: “Developments over the weekend mean we are entering a new and very dangerous phase for financial markets.

“There will likely be more heavy losses as markets open on Monday after President Trump issued Iran a 48-hour ultimatum to reopen the Strait of Hormuz.

“Brent is likely to make a new wartime high, which could spike north of $130, with front-month futures perhaps even touching $150.”

Others warned about the widespread impact of the energy crisis. Speaking at the China Development Forum 2026, Patrick Pouyanné, chairman and chief executive of French energy giant TotalEnergies, said: “All the economies of the world will be damaged” if the disruption lasts for more than six months.

Speaking over the weekend, the head of British Gas called on the Government to drop its ban on exploiting untapped oil and gas fields in the North Sea to bolster energy security.

Chris O’Shea, the chief executive of Centrica, which owns British Gas, said an increase in drilling would help lower prices across Europe.

“It’s not a silver bullet; nothing in and of itself will fix this. But these activities will bring prices down. It would definitely make a difference,” he said.