UK economic growth forecast revised down amid global uncertainties
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, reports BritPanorama.
New forecasts from the Organisation for Economic Co-operation and Development (OECD) anticipate UK economic growth to be weaker than the 1.4 per cent reported last year, likely dipping to 1 per cent next year. This revision stems from a moderate global growth outlook, compounded by recent increases in energy prices and higher policy rates, which are expected to restrain economic activity across Europe.
In June, the OECD had projected a growth rate of 1.1 per cent, but the new forecast reflects a broader economic slowdown. The report noted UK inflation would be below previous forecasts this year, albeit taking longer than expected to return to target levels.
This outlook comes despite stronger-than-expected economic performance in 2026 and ahead of the government’s crucial Budget next month, during which Chancellor John Healey will seek funding for Burnham’s pledges and proposed defence plans.
Treasury minister Emma Reynolds asserted that the UK economy is “showing strong resilience” despite external turmoil. “We will face these challenges together and we are already giving families space to breathe,” she added.
She further highlighted the UK’s economic strength, citing the fastest growth in the G7 during the first half of the year and ongoing changes to foster job creation and economic growth nationwide.
According to the OECD, global economic growth remains resilient in many countries amid the conflict in Iran. However, they indicated that recent rises in energy prices linked to the prolonged conflict are likely to lead to heightened inflation in the near term before gradually easing next year.
Although energy prices dropped during a brief ceasefire over the summer, they have risen sharply following its collapse in July. In the UK, economic growth is now estimated at 1.1 per cent for the current year, an upgrade from the earlier 0.9 per cent forecast made in June, driven by solid domestic demand.
The OECD report also suggested consumers may benefit from newly announced government support measures, including the recent removal of VAT from household energy bills starting in October. Consumer price inflation is projected to reach 3.1 per cent for this year, lower than the previous estimate of 3.6 per cent yet still representing the second-highest increase in the G7.
Inflation rose to a five-month high of 3.1 per cent last month, with the Bank of England predicting it will reach 3.75 per cent by year-end and peak at approximately 4 per cent in early 2027. The OECD forecast indicates inflation will slow to 2.6 per cent next year, marking a shallower decline than previously anticipated, while indicating that inflation across the G20 should hit around 3.6 per cent next year, exceeding its prior forecast by 0.5 percentage points.
