A war with Iran threatens to slow down the British economy
The U.K. economy grew by 0.4% in the second quarter, following a 0.6% increase in the first quarter. At the same time, a war with Iran, the closure of the Strait of Hormuz, and high energy prices could weaken economic momentum in the coming months, according to CNBC.
Business investment rose by 1.7% in the second quarter, although economists surveyed by Reuters had expected a 0.5% decline. Sanjay Raja, chief economist at Deutsche Bank in the UK, said the country is on track for the highest growth rate among G7 nations for the second consecutive quarter. He estimates that the annualized growth rate for the first half of the year was about 2%.
Hot weather, the England national team’s strong performance at the World Cup, and improved business sentiment all contributed to increased consumer spending. At the same time, Raja expects a slowdown, particularly due to rising fuel prices, which will put pressure on household incomes.
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In April, the International Monetary Fund warned that a war between the U.S., Israel, and Iran could hit the UK’s growth prospects harder than those of other developed countries. The UK relies on oil and gas imports, and inflation for goods in the country has risen more sharply in recent years than in most of its partners.
According to Bloomberg, officials from the UK Treasury presented Prime Minister Andy Burnham with a worst-case-scenario simulation. According to the agency, these projections suggest that economic growth next year could slow to 0.3% if disruptions in the Strait of Hormuz continue. The Ministry of Finance did not respond to a request from CNBC regarding these estimates.
Tomasz Wieladek, chief European macroeconomist at T. Rowe Price, noted that the private sector, rather than government spending, is increasingly becoming the driver of growth. At the same time, he cautioned that the full impact of the Middle East conflict on the British economy could become apparent in the second half of the year. Shaniel Ramji, a representative of Pictet Asset Management, added that growth is primarily concentrated in the services sector, while construction and industrial production are declining on a year-over-year basis.
