OECD trims growth forecasts for UK

26th Mar 2026 07:52

(Sharecast News) - The Organisation for Economic Co-operation and Development flagged heightened inflation risks on Thursday, as it trimmed growth forecasts for the UK in the wake of war in the Middle East.

Publishing its latest interim economic outlook on Thursday, the Paris-based body now expects British GDP to grow by 0.7% in 2026, down on previous estimates for a 1.2% improvement. Guidance was left unchanged for 2027 at 1.3%.

Inflation - which currently stands at 3% - was forecast to accelerate to 4% this year, before dropping back to 2.6% in 2027.

Mathias Cormann, the OECD's secretary-general, said: "The energy supply shock from the evolving conflict in the Middle East is testing the resilience of the global economy.

"We project that global growth will remain robust, but it will be slower than the pre-conflict trajectory, with significantly higher inflation."

The OECD left its global growth forecast at 2.9% for the current year, but trimmed it by 0.1 percentage to point, to 3.0%, for 2027.

Prior to the US attacking Iran, the Bank of England had been widely expected to cut the cost of borrowing in March, as it looked to boost economic growth amid waning inflation. However, faced with the spike in global energy prices, the Monetary Policy Committee instead opted to leave Bank Rate unchanged at 3.75% and said it "stands ready" to tackle any spike in inflation.

Markets are now pricing in at least two quarter-point rises this year, although the OCED expects the central bank to leave Bank Rate at 3.75% before resuming cuts in early 2027. The BoE's long-term inflation target is 2%.

Kathleen Brooks, research director at XTB, said: "The UK is set to be the second weakest G7 economy this year and the third weakest in the G20. This is just above Russia, while Italy is set to have the weakest rate of growth this year at a mere 0.4%. France and Germany are both expected to grow at a faster rate than the UK at 0.8%. This is a reversal from 2025 with the UK on track to have easily outpaced growth rates for Germany and France last year."

Dan Coatsworth, head of markets at AJ Bell, said: "The longer the Middle East crisis lasts, the bigger the potential economic hit. The UK's GDP is already moving at a lacklustre pace, as the government works through a plan of public finance strengthening first and economic growth second. The last thing the chancellor wants is for her growth plan to be derailed, but it's clear that she needs to consider such a scenario."