OECD trims UK growth outlook for 2027 amid Middle East conflict spillovers

The UK economy is now expected to grow slightly less than previously forecast in 2027, according to the OECD, which linked the downgrade to the ongoing conflict in the Middle East and higher fuel prices. The Paris-based organisation said the UK will expand by 1.0% in 2027, down from an earlier estimate of 1.1%. It also raised its forecast for UK growth in 2026 to 1.1%, from 0.9%.

Sponsored

The OECD said the short-term outlook for 2026 had improved because of solid domestic demand growth. But it warned that the picture for 2027 was weaker, as higher fuel prices were expected to weigh on activity. The organisation said the effect would depend on how long supply disruptions last, indicating that the forecast remains sensitive to developments in the conflict.

The revision comes as Chancellor John Healey prepares to deliver his first Budget at the end of October. The OECD said the Middle East war has contributed to higher oil and gas prices globally, pushing up inflation in countries including the UK. It also said climate-related supply shocks remain a risk to the world economy, alongside the conflict.

The forecast is part of a wider assessment of global growth, with the OECD saying next year's world economy is expected to be 0.1% lower than previously thought. It said countries including Australia, Canada and the euro area are also affected. The warning underlines how a conflict far beyond Britain's borders can still influence domestic inflation, household costs and the government's fiscal planning.

Sponsored

The OECD's comments add to a broader debate over how long energy and supply-chain pressures may persist if the conflict continues. The organisation did not say how long the disruption might last, and its forecast could change if fuel prices ease or if the geopolitical situation worsens. The key issue for policymakers will be whether stronger demand in 2026 can offset the weaker outlook for the following year.

For now, the main uncertainty is the duration of the conflict and its effect on energy markets. The OECD's next forecasts will show whether the 2027 downgrade proves temporary or becomes part of a longer period of slower growth. Attention will also turn to the Budget later this year, as ministers assess the impact of inflation and weaker medium-term growth on the public finances.

#OECD #UnitedKingdom #growthforecast #fuelprices #MiddleEastconflict