The UK government has lowered its economic growth forecast for 2026 to 1.1%, down from 1.4%, citing rising risks from the escalating conflict in Iran and the Middle East, Chancellor Rachel Reeves announced. Rising energy prices and global uncertainty are key factors affecting the outlook.
The Office for Budget Responsibility (OBR) highlighted that the updated figures were finalised before US and Israeli strikes on Iran and warned that further Middle East tensions could significantly impact the UK and global economies.
Analysts now expect slower interest rate cuts in 2026 as surging oil and gas prices strain inflation and consumer spending. The Bank of England had earlier projected inflation easing to its 2% target, but energy disruptions have complicated the outlook.
Unemployment, currently at a five-year high of 5.2%, is expected to peak later this year before declining, but officials caution that the economic forecast remains highly sensitive to ongoing Middle East instability.
