UK economy will grow by less than expected next year, OECD says

The Organisation for Economic Co-operation and Development (OECD) has forecast that the UK's economic growth next year will be lower than initially anticipated due to the ongoing conflict in the Middle East. The UK is set to grow by 1% in 2027, a moderate downgrading from the previous forecast of 1.1%, according to the OECD. However, the agency has upgraded the UK's growth outlook for 2026, from 0.9% to 1.1%. This prediction comes as Chancellor John Healey prepares to announce his first Budget at the end of October.

In the short term, the UK's growth in 2026 is expected to surpass the OECD's June prediction due to strong domestic demand growth. However, higher fuel prices are projected to erode growth in 2027. The extent of this impact will depend on the duration of supply disruptions.

The OECD identifies the Middle East war and climate-change related supply shocks as significant risks to the global economy. This year, global growth is anticipated to be 0.1% lower, with countries like Australia, Canada, and the Euro-area also affected. The conflict in the Middle East has led to higher oil and gas prices globally, contributing to inflation in nations including the UK. Additionally, weather-related shocks, such as a strong El Nino, could further strain farmers and drive up food prices.