Britain is facing a larger economic fallout than any other major country as a result of the war in the Persian Gulf, according to the first comprehensive assessment of the impacts of the conflict.
The Organization for Economic Co-operation and Development (OECD) has cut its 2026 forecast for UK GDP by 0.5 percentage points, meaning Britain will be one of the most vulnerable countries. economic development This year in the developed world.
Its forecast output growth of 0.7% amounts to the worst decline among OECD member countries, with the euro zone and South Korea close behind.
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In contrast, the US will enjoy strong growth this year as a result of the events of the past few weeks.
The divergence is mainly explained by higher energy prices, which act as a tax on British living standards, as the UK is an energy importer, particularly sensitive to gas prices, while the US exports significant quantities of hydrocarbons.
The OECD said it was broadly downgrading its forecasts for growth after a sharp rise in the price of crude oil, along with other key related products from jet fuel and diesel to fertilizers, would weigh heavily on prices for consumers, including food and other essential goods.
The OECD interim forecast is the first major update on the global economy from a major international body since the start of military activity in the Persian Gulf.
It added: “The breadth and duration of the conflict is highly uncertain, but a prolonged period of high energy prices will significantly increase business costs and increase consumer price inflation, adversely affecting growth.”
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It pointed to increased US-imposed tariffs in recent months as another source of uncertainty, leading to a decline in global growth, and said: “A significant downside risk to the outlook is that continued disruption to exports from the Middle East that pushes energy prices higher than expected and exacerbates shortages of key commodities, pushing up inflation and undermining growth.”
“Such a scenario, or lower-than-expected returns from AI investments, could lead to more widespread revaluation in financial markets, weakening demand and increasing financial stability risks.”
Financial markets have taken the full cost of two interest rate hikes by the Bank of England this year to deal with the prospect of oil and gas costs sweeping the economy.
However, the OECD believes the bank will stay put. It considered the current rate of 3.75% to be too restrictive given the weakness of the country’s current labor market.
It predicts inflation of 4% for the UK – higher than the current annual rate of 3%.
Chancellor Rachel Reeves said of the report: “The war in the Middle East is not one we started, nor is it a war we entered into. But it is a war that will have an impact on our country.”
“We have the right economic plan in place in an uncertain world. The decisions we have taken have put us in a better position to protect the country’s finances and family finances from global instability.”
“Our economic plan means moving forward to build a stronger, more secure economy. It means moving forward on our Big Three: empowering regional growth, embracing AI and innovation, and building closer ties with the EU.”
