The Bank of England has issued an urgent warning that a potential military conflict with Iran could have severe repercussions for the British economy, endangering both jobs and pension funds. In a confidential assessment circulated to Whitehall officials, the central bank's financial stability team modelled a scenario in which a prolonged confrontation in the Strait of Hormuz leads to a spike in oil prices, a collapse in sterling, and a sharp contraction in GDP. The report, seen by this correspondent, notes that British pension funds hold significant exposure to energy stocks and Middle Eastern sovereign debt, which could face a wave of defaults.
The Bank's governor, Andrew Bailey, is understood to have raised the issue directly with the Prime Minister during a scheduled meeting on Tuesday, urging that diplomatic channels be exhausted before any military action is considered. The Treasury has declined to comment on the specifics of the warning, but a spokesperson confirmed that contingency planning is underway. The warning comes as the Royal Navy dispatches an additional destroyer to the Gulf, heightening fears of an escalation after recent attacks on oil tankers.
Economic analysts at the Institute for Fiscal Studies have estimated that a sustained conflict could wipe out up to 3% of the UK's GDP, pushing unemployment above 6% and triggering a reduction in state pension increases. The Bank's assessment further highlights the risk of a run on sterling, which has already weakened by 4% against the dollar this month. In response, the Financial Conduct Authority has issued a statement reminding pension providers to maintain adequate liquidity buffers.
The unfolding situation has prompted emergency meetings at the Bank of England and the Treasury, with officials racing to model worst-case scenarios for the British economy. As the government navigates this crisis, the primary concern is the preservation of financial stability and the protection of savers. The governor's intervention underscores the gravity of the moment, signaling that the economic costs of a conflict may outweigh any perceived strategic gains.
