While the conflict in Iran dominates world news, should we be looking closer to home and bracing ourselves for the economic impact and recession risk?

Here, we’ll look at what a recession really means, its causes, and the risk of one unfolding in the coming months. We’ll also explore investing in assets such as gold, to diversify your portfolio and help ride out the storm.

What is a recession?

Numerous theories attempt to explain when and how economic recessions occur.

The general definition of a recession though is two consecutive quarters of negative economic growth as measured by a country's GDP.

Take a look at the chart below:

As you can see, the recession is a tipping point of a business cycle when economic growth reaches its peak and then reverses, becoming an economic contraction.

But in real life, a recession could mean 4 things:

• Slow or even negative growth in production.
• A rash of business failures and sometimes bank failures.
• High unemployment.
• Social upheaval resulting from economic distress.

So even though recessions are temporary, the economic pain they cause can have major effects on an economy.

What causes a recession?

One of the causes of a recession is a loss of business and consumer confidence. As confidence falls, so does demand. As a result, retail sales slow, producers cut back in response to falling orders, and the unemployment rate rises.

Among other key causes are a stock market crash, high interest rates, food and oil shocks, conflict and inflation.

Global recession outlook: what are the risks in 2026?

While inflation had been showing signs of stabilising, the conflict in Iran has thrown leading economies into turmoil over the last two months.

The blockade of the Strait of Hormuz has had a major impact on world oil supplies, with prices rocketing from $62 a barrel in January to as high as $124 in April. This, in turn, has caused a domino effect, leading to rising prices in everything from raw materials and production to transport and the cost of food.

Consumers are understandably cutting back, as is industry. Household expenses are rising while wages stagnate. As we’ve already seen, these all put us at possible recession risk.

Is a recession coming in the UK?

While it looks like we’re all in for a bumpy ride, the IMF are warning the UK could be particularly badly hit. Economic forecasts, made in January and April 2026, show UK growth dropping by 0.5%, with other wealthy nations seeing an average drop of only 0.13%.

Why? In part because of our reliance on imported energy. Any sudden shocks to fuel prices tend to ripple out through the wider economy.

But, while consumers might be looking for a helping hand from government, the IMF have urged caution when it comes to offering assistance or raising interest rates too soon.

However, the report also stated that the risk of a recession would only go up if today’s severe conditions were to go on for over two years.

If a peace deal is brokered and energy production and exports get back on track by the middle of the year, the forecast might not be so gloomy.

Should investors worry about a possible recession?

In short, not really. Especially if they’re well-prepared with a diversified portfolio.

Firstly, because we can’t know precisely when a recession could be coming.

Secondly, it’s impossible to predict a recession’s impact on markets.

There’s a general agreement however, that during a recession, riskier assets like stocks and high-yield bonds tend to decrease, while gold has historically gone up.

For example, the Great Recession of 2008 boosted the price of gold, even though it fell in the aftermath of the Lehman Brothers' bankruptcy.

But, as the chart below shows, gold clearly outdid S&P 500 right after the crisis began.

Will gold act the same way if another economic squeeze unfolds? No one knows for sure. You can stay up to speed though, with our gold price charts and live gold price tracker.

One thing is clear though: diversifying your portfolio and taking measured steps to control risk can help preserve your wealth and savings.