OECD: UK Economy to Grow Less Than Expected Next Year

The Organisation for Economic Co-operation and Development (OECD) has stated that the UK economy is expected to grow less than previously anticipated next year. This downgrade is attributed to higher energy prices stemming from ongoing conflicts in the Middle East and the impacts of climate change. The OECD revised its 2027 growth forecast for the UK from 1.1% down to 1%. Conversely, the growth outlook for 2026 was upgraded from 0.9% to 1.1%.

Highlights

• The OECD has reduced the UK's 2027 economic growth forecast from 1.1% to 1%.
• The 2026 growth outlook was revised upwards from 0.9% to 1.1%.
• Ongoing Middle East conflicts and climate change-related supply shocks are identified as key risks to the global economy.
• Global growth is also projected to be 0.1% lower next year.
• Higher fuel prices are expected to dampen growth in 2027.

Details

According to the OECD report, the UK is expected to see stronger growth in the short term, specifically in 2026, driven by robust domestic demand. However, for 2027, higher fuel prices are anticipated to eat into this growth. The duration of this impact will depend on how long supply disruptions persist.

The organization highlighted that risks to the global economy include the ongoing conflict in the Middle East and supply shocks related to climate change. The Middle East conflict has contributed to increased oil and gas prices worldwide, pushing up inflation in various countries, including the UK. Additionally, weather-related shocks, such as a strong El Nino, could affect farmers and contribute to higher food prices.

Why it matters

These projections come as UK Chancellor John Healey prepares to deliver his first Budget at the end of October. The OECD's report underscores a broader global economic slowdown that is expected to affect not only the UK but also other major economies such as Australia, Canada, and the Euro-area. Elevated energy and food prices could place additional pressure on households and businesses, potentially hindering economic recovery.