Britain’s economic growth outlook for 2026 has received the biggest downgrade among major OECD economies, according to the Paris-based body’s latest interim forecast. The OECD cut the UK’s growth forecast by half a percentage point to 0.7%, following the escalation of the U.S.-Israeli conflict with Iran, which has driven energy costs higher.
Rising inflation is also expected. The OECD revised the UK’s 2026 inflation forecast up to 4.0%, a 1.5 percentage point increase and the largest upward revision among advanced economies. Inflation in 2027 is projected at 2.6%, above the Bank of England’s 2% target.
“Planned fiscal tightening and higher energy prices are anticipated to keep growth subdued in the UK, though lower policy rates next year may offer some relief,” the report said.
The OECD expects the BoE to maintain interest rates this year before cutting in early 2027 as inflation eases. Meanwhile, Prime Minister Keir Starmer has prioritized boosting growth and reducing the cost of living, while Finance Minister Rachel Reeves emphasized plans to focus on regional growth, innovation, AI adoption, and strengthening ties with the EU despite the economic impact of the Middle East conflict.
