UK economic growth is expected to slow next year as Britain continues to grapple with the impact of Donald Trump’s war in the Middle East in a major blow to Andy Burnham’s fiscal ambitions.
New forecasts from the Organisation for Economic Co-operation and Development (OECD) expect UK economic growth to be be weaker than the 1.4 per cent reported last year, and is then likely to dip slightly next year.
In June, the OECD had previously predicted economic growth of 1.1 per cent but now said this is likely to be 1 per cent as growth moderates globally, as recent increases in energy prices and “higher policy rate” are likely to drag on activity across Europe.
It also reported that UK inflation will be below previous forecasts this year but will then take longer than expected to fall back to target levels.
In comparison, growth across the world is forecast to reach 3 per cent in 2027, down from the previously estimated 3.1 per cent.
The forecast comes despite a stronger-than-expected performance in 2026, and ahead of the government’s crucial Budget next month, when chancellor John Healey seeks to find funding for Mr Burnham’s pledges and plans for defence.
Treasury minister Emma Reynolds insisted the UK economy is “showing strong resilience” despite the war in the Middle East.
“We will face these challenges together and we are already giving families space to breathe,” she said.
“We had the fastest growth in the G7 in the first half of the year and we are starting the big, long-term changes needed to create good jobs and growth in every postcode.”
The global economic body said global growth was “resilient in many countries” during 2026 despite the impact of the war in Iran, but also indicated that recent rises in energy prices linked to the prolonged conflict are likely to cause more inflation in the near term, before gradually easing next year.
It comes after energy prices eased back over the summer amid the US-Iran ceasefire period, but these have swung notably higher after the ceasefire collapsed in July.
In the UK, the economy is set to have grown by 1.1 per cent for this current year, according to the fresh forecasts.
It represents an upgrade from a previous estimate of 0.9 per cent growth from June, amid a boost from “solid” domestic demand in the second quarter of the year.
The report also indicated that consumers are likely to “be supported by newly announced government support measures”, such as the removal of VAT from household energy bills from October.
Meanwhile, UK consumer price inflation is on track to hit 3.1 per cent for this year, significantly lower than the previous prediction of 3.6 per cent but still the second-fastest increase in the G7.
Inflation lifted to a five-month high of 3.1 per cent last month, with the Bank of England predicting last week that this will lift to 3.75 per cent by the end of this year and peak at around 4 per cent in early 2027.
The OECD said it now expects inflation to slow to 2.6 per cent next year, pointing to a shallower drop than previously expected, having forecast 2.4 per cent in June.
It predicted that inflation across the G20 will hit around 3.6 per cent next year, 0.5 percentage points ahead of its previous forecast.
