The Middle East energy shock could wipe around £35 billion from the UK economy over the next two years in a “best-case” scenario, an economic think tank has warned.

The National Institute of Economic and Social Research (Niesr) said that a more protracted crisis in the Middle East could see the UK enter a recession in the second half this year.

The group’s latest quarterly economic projections pointed to an increasingly gloomy outlook as the war between US- Israeli and Iranian forces weighs on economies globally, with the UK set for slower growth and rising inflation.

It indicated that the Bank of England’s committee rate-setters are likely to increase interest rates this summer as a result, with the potential for up to six more hikes in a more severe scenario.

On Thursday, the Bank’s Monetary Policy Committee will vote on whether to keep interest rates at their current level of 3.75%.

Niesr said it expects interest rates to be held at this meeting, but predicted they will be increased to 4% in July –…