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An international organization has forecast that the UK’s economic growth next year will be slightly lower than previously anticipated, influenced largely by ongoing conflicts in the Middle East. The Organisation for Economic Co-operation and Development (OECD) identified the prolonged war involving the US and Israel in Iran as a key factor affecting the economic outlook for multiple countries, including the UK.
According to the OECD’s latest assessment, the UK’s growth rate for 2027 is expected to be 1%, a slight downgrade from the earlier projection of 1.1%. Conversely, the same agency has revised its growth estimate for 2026 upward, from 0.9% to 1.1%. These changes come amid preparations by Chancellor John Healey for his first Budget announcement scheduled for late October. At the same time, Prime Minister Andy Burnham is prioritizing reducing the cost of living pressures on households, even as the government confronts escalating demands to increase defense spending.
The government faces a challenging task in balancing plans to offer additional financial support to families with commitments to Labour’s manifesto pledges on taxation and adherence to self-imposed fiscal rules. Contributing to the complexity is inflation, which has driven up interest costs on government debt. This situation has been exacerbated by an unexpected spike in government borrowing during August, creating additional budgeting pressures for Healey. Meanwhile, the OECD cites “solid domestic demand growth” as a factor behind the improved short-term growth outlook for 2026, but notes that higher fuel costs are expected to dampen growth prospects in 2027. The duration of supply interruptions remains a critical variable, although oil stockpiles and imports from outside the Gulf region have so far helped mitigate the impact on affected economies.
The OECD also highlighted broader global risks to economic stability, including ongoing conflict in the Middle East and supply disruptions linked to climate change. For the coming year, the agency predicts global growth will be reduced by 0.1%, with countries such as Australia, Canada, and those within the Eurozone expected to feel the effects. Rising oil and gas prices driven by tensions in the Middle East have contributed to inflationary pressures, particularly in the UK. Additional challenges include weather-related disruptions—such as those potentially caused by a strong El Niño—which may negatively impact agricultural output and food prices. Furthermore, persistent trade uncertainties fueled by tariffs and export restrictions continue to pose risks.
Responding to the OECD’s analysis, Chief Secretary to the Treasury Emma Reynolds emphasized the UK’s economic resilience despite external pressures: “Despite unprecedented pressures and conflict in both the Middle East and in Europe, the UK economy is showing strong resilience.” Reynolds also highlighted government efforts to ease financial burdens on families and to pursue long-term strategies aimed at generating quality jobs and widespread economic growth. In contrast, Conservative shadow chancellor Andrew Griffith criticized the government’s approach, stating that the OECD recommends countries “control spending and improve public sector efficiency.” He added, “Instead, this government is trying to find new ways to tax you whilst having to pay interest rates on their borrowing which are the highest in the G7.”
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