Britain is facing a £35bn economic hit and the risk of a recession this year as the fallout from the Iran war adds to the pressure on Keir Starmer’s government, a leading thinktank has warned.

The National Institute of Economic and Social Research (Niesr) said that even under a best-case scenario the UK economy would grow at a much slower pace this year and next because of the Middle East conflict.

With households facing a rise in energy costs linked to the Iran war, the chancellor, Rachel Reeves, has said that “nothing is off the table” as the government considers options to provide a targeted and temporary support package.

However, Britain’s oldest independent economic research institute said the government faced a multibillion-pound hole in the public finances amid a worsening inflation shock that would make it harder for Reeves to respond.

David Aikman, the Niesr director, said: “This is a serious blow to the government’s mission to get the UK economy growing again.

“The Middle East conflict has…