Britain's economic recovery is facing increased uncertainty, with the Office for Budget Responsibility (OBR) downgrading its 2026 growth forecast to 1.1%, down from 1.4%. Chancellor Rachel Reeves stated that the government's plan is yielding results, citing stronger projections for 2027 and 2028 at 1.6%, with falling inflation and government borrowing.
However, these forecasts were made before the escalation of conflict in the Middle East. The OBR cautioned that an escalating Iran conflict could have "very significant impacts" on the global and UK economies.
Economists warn that a prolonged conflict could invalidate projections, dampening growth, increasing inflation, and raising public debt. Brent crude prices have surged over 15% this week, and global gas prices have nearly doubled, threatening higher energy bills for consumers and businesses.
Reeves acknowledged the "more uncertain" global landscape following strikes on Iran, stating the government's commitment to securing the economy against shocks. Labour had hoped 2026 would signal a turning point for the economy. Recent data shows a modest pickup in activity, with inflation expected to fall sharply, potentially leading to interest rate cuts.