Commuters cross London Bridge in London, England.
Peter Summers | Getty Images News | getty images
Although the impact of the war in Iran is not affecting any major global economy, according to the Organization for Economic Co-operation and Development (OECD), Britain is predicted to take the biggest economic hit of any developed market nation.
in your latest economic report The OECD made steep revisions to its UK outlook, revising growth and inflation forecasts made in December.
It now forecasts UK inflation will reach 4% this year – 1.5 percentage points (pp) higher than its previous forecast – and growth to 2026 will be 0.5%, down 0.5% from its previous review.
These amendments were the most drastic of all the amendments made by the Paris-based OECD regarding major global economies. interim economic outlook Published on Thursday.
Of the G7 group of industrialized economies, only the US was predicted to see higher inflation this year, with the OECD predicting the rate to reach 4.2%.
The US and Israel’s war with Iran has already had a dramatic impact on the global economy, prompting central banks to lower growth forecasts and raise inflation expectations due to rising international oil and gas prices.
The conflict in the Middle East is testing the resilience of the global economy, with the outlook “beset by high uncertainty”, the OECD said on Thursday.
The OECD said growth was supported by strong momentum in technology-related investment and lower-than-expected tariff rates, but Iran’s blockade of most energy shipments through the Strait of Hormuz and damage to regional energy infrastructure “have driven up energy prices and disrupted global supplies of other critical commodities such as energy and fertilizers.”
“This is increasing costs, impacting demand and increasing inflationary pressures,” the OECD said.
The UK is more affected by global energy price shocks than many other countries, as the country imports most of its oil and natural gas, and gas storage facilities are limited. The final inflation print, published earlier this week, shows the consumer price index unchanged at 3% in February, now expected to rise.
The low growth outlook and high inflation trajectory have become a problem for the Bank of England, which, before the war began, was expected to cut interest rates from the current level of 3.75% this spring, which would have been welcome relief for borrowers and businesses.
The war has dampened expectations for interest rate cuts for the time being, however, with some economists saying an increase could occur if the war continues longer than expected.
The OECD said central banks “need to remain vigilant and ensure that inflation expectations remain well anchored,” adding that “monetary policy adjustment may be needed if price pressures intensify or growth prospects weaken significantly.”
The British government has announced it will help those hardest hit by rising energy prices, but Finance Minister Rachel Reeves insisted this week there would be no sweeping measures to support households with their energy bills.
Financial markets are keeping a close eye on the UK Labor government for signs of fiscal indiscipline, with Reeves reiterating that his “fiscal rules” were supposed to limit government borrowing and reduce the national debt. “Iron Cover” -And Iran is not going to bow down in response to war.
