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Andy Burnham has received a cautionary message regarding the potential stagnation of the UK economy, should disruptions in the Strait of Hormuz persist until the end of 2026. According to Treasury insiders, internal projections shared with the prime minister and chancellor indicate that the UK’s GDP growth could dwindle to as low as 0.3% in 2027, as initially reported by Bloomberg.
Government officials have emphasized that they regularly prepare for a wide range of outcomes. The UK economy enjoyed a robust start earlier this year, but growth slowed down amid turmoil in the Middle East, which has directly affected several industries. The ongoing conflict involving Iran has caused an increase in oil and fuel prices and has resulted in interruptions within global supply chains.
On Thursday, the government is set to release official data reflecting the economic performance between April and June of this year, with economists predicting a 0.4% growth for that quarter. Burnham and Chancellor John Healey were presented with a challenging scenario where the Strait of Hormuz remains largely inaccessible for the next five months, with no lasting US-Iran peace agreement expected until after the new year. Under this scenario, Treasury forecasts suggest the UK economy might grow by 0.9% in 2026, slightly under the Office for Budget Responsibility’s (OBR) March projection of 1.1%. However, the outlook for 2027 appears bleaker, with anticipated growth significantly below the OBR’s 1.6% forecast.
The Treasury’s modelling further predicts that inflation will peak at 4.3% during the first quarter of next year, compared to the current rate of 2.6%, which is somewhat above the Bank of England’s 2% inflation target. With these challenges in mind, Burnham and Healey are under pressure to use the forthcoming Budget on 28 October to alleviate financial strains faced by households and businesses. Since taking office three weeks ago, Burnham has introduced measures such as removing VAT on domestic electricity bills and accelerating plans to end “subscription traps.” Nonetheless, speaking on BBC’s Wake Up to Money, he acknowledged that these steps alone are insufficient, hinting at additional support in the pipeline. Healey has been tasked with considering further cost-of-living measures for the Budget, though he has affirmed a commitment to “strong fiscal discipline,” which will restrict government expenditure. Burnham has reiterated his government’s adherence to party manifesto promises not to raise income tax, VAT, or National Insurance contributions and pledged to continue following fiscal rules established by former Chancellor Rachel Reeves, including the aim to balance day-to-day spending with tax revenues by the end of the decade
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