The Organisation for Economic Co-operation and Development says the UK economy will face the largest growth impact among major economies from the ongoing conflict involving Iran.
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The organisation lowered its forecast for UK economic growth in 2026 to 0.7%, down from an earlier projection of 1.2%. It also raised its expectations for inflation as global energy costs surge.
OECD cuts UK growth outlook
The downgrade reflects the economic shock triggered by the war involving the United States, Israel and Iran, which has disrupted energy supply chains and heightened uncertainty across global markets.
The OECD warned that a prolonged conflict could create major energy shortages worldwide. Sustained increases in fertiliser costs could also reduce agricultural yields and push food prices higher next year.
Energy disruption fuels inflation risks
Energy markets have been heavily affected by the conflict, with oil and gas prices rising sharply.
A key factor is the disruption to shipping through the Strait of Hormuz, a critical route used to transport a large share of the world’s oil and liquefied natural gas.
Damage to energy infrastructure in the Middle East has also tightened supply.
Economists say a sustained period of high energy prices could slow global economic growth, push inflation higher and reduce the chances of interest rate cuts.
In the UK, the impact is already visible through rising petrol and diesel prices, along with higher costs for heating oil. Mortgage lenders have responded by increasing rates and withdrawing hundreds of loan offers.
Global outlook and UK inflation
Despite the disruption, the OECD left its global growth forecast for 2026 unchanged at 2.9%.
However, inflation across the G20 economies is now expected to reach 4%, up from an earlier forecast of 2.8%. The group represents about 85% of global economic output.
UK inflation is predicted to reach 4% this year, significantly above the previous estimate of 2.5%.
The OECD expects inflation to ease to 2.6% by 2027, although that would still be higher than its earlier projection of 2.1%.
Among members of the Group of Seven industrialised economies, only the United States is forecast to record higher inflation than the UK, while Italy is expected to post weaker economic growth.
Political reaction in Britain
The UK’s fiscal watchdog, the Office for Budget Responsibility, had already reduced its growth forecast earlier in March to 1.1%, down from 1.4%. That assessment was made before the escalation of the Iran war, which the agency said could have a “very significant” impact on global economies.
Chancellor Rachel Reeves said the conflict would affect the UK economy but argued government policies had strengthened the country’s financial position.
She added that the government could provide support for households if energy costs rise sharply, though any measures would remain limited by borrowing rules designed to keep inflation and interest rates under control.
Opposition politicians criticised the outlook. Shadow chancellor Mel Stride said the downgrade exposed the economy’s vulnerability, while the Liberal Democrats described the forecast as a warning about weak growth.
The OECD said its projections assume disruption in energy markets will ease later this year, with oil, gas and fertiliser prices falling from the summer.
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Adapted by ASEAN Now. Source 27 March 2026