The news: The war in Iran is expected to drag on European growth this year, as rising energy costs and supply disruptions fuel inflation, erode sentiment and buying power, and create more uncertainty for businesses.

• The International Monetary Fund (IMF) and European Central Bank both lowered their 2026 growth forecasts for the euro area, to 1.1% and 0.9%, respectively—down from prior estimates for 1.4% and 1.2% growth.
• The UK is expected to see the biggest hit due to the war, with the IMF now projecting 0.8% GDP growth this year, compared with expectations for 1.3% at the end of 2025.
• Germany’s government halved its growth forecast for 2026 to 0.5% and cut its 2027 GDP outlook from 1.3% to 0.9%.

The headwinds: The UK and EU’s reliance on external energy is once again upending their economies and increasing pessimism among businesses and consumers.

• EU consumer confidence fell in March to its lowest level since October 2023, with households expressing “markedly more” pessimism about their future financial situations and declining interest in big-ticket purchases, according to the European Commission.
• Retail trade and services confidence also declined as companies’ expectations for future business fell.

The region’s travel industry is in a precarious position. Europe has roughly six weeks of jet-fuel supply remaining, the International Energy Agency warned; any disruption would imperil an industry that generates €851 billion ($960.05 billion) annually in GDP for European economies and supports 14 million jobs, according to trade group ACI Europe.

The UK economy is also in a fragile spot. Consumers were already pessimistic heading into 2026, with around two-thirds citing the cost of living and inflation as top concerns, according to a November 2025 Attest survey. The war will only intensify those pressures.

Several indicators suggest a tougher outlook for households and businesses.

• Food inflation is expected to reach at least 9% by the end of the year, according to estimates by the Food and Drink Federation.
• An extended closure of the Strait of Hormuz could trigger carbon dioxide shortages—threatening critical parts of the food supply chain and raising the risk of gaps on grocery store shelves.
• Tesco, the UK’s largest grocer, broadened its full-year guidance due to uncertainty about how the conflict could affect household spending.

Implications for retailers: The energy shock from the war in Iran is set to be painful for European economies, especially when combined with ongoing tariff pressure and the lingering impact of Russia’s invasion of Ukraine. As in the US, skyrocketing energy costs will force consumers to reduce spending in other areas, leaving discretionary sectors like travel and restaurants especially vulnerable.

In this environment, retailers will need to compete harder on value. Companies that can offer shoppers relief, either in the form of lower prices or promotions, are more likely to find success as consumers divert more of their budgets to necessities.

Go further: Read our Live FAQ: The Marketing & Commerce Impacts of the War in Iran on Europe.