Britain’s economic growth prospects received the sharpest downgrade of any major economy in the OECD’s interim forecast update on Thursday, following the US war on Iran, while inflation is projected to rise faster than previously anticipated. The Paris-based international body cut its 2026 forecast for British economic growth by half a percentage point to 0.7%, compared with a 0.4 percentage point downgrade for the euro zone and a 0.3 percentage point upgrade for the United States. The OECD attributed the subdued growth to planned fiscal tightening and higher energy prices, though it noted the impact would be attenuated by lower policy rates next year.
The report revised Britain’s 2026 inflation forecast upward by 1.5 percentage points to 4.0%, marking the largest such revision among large, advanced economies. While the 2027 growth forecast remains unchanged at 1.3%, inflation for that year is projected at 2.6%, staying above the Bank of England’s 2% target. The OECD expects the Bank of England to maintain interest rates throughout this year before initiating cuts in the first quarter of 2027 as inflation eases. These projections contrast with earlier forecasts from Britain’s Office for Budget Responsibility, which had predicted GDP growth of 1.1% this year and 1.6% in 2027 prior to the start of the conflict.