UK could be worse hit from Iran war of all major economies: OECD
While the impact of the war in Iran has spared no major global economy, the UK is predicted to take the biggest economic hit of any developed market country, according to the Organization for Economic Co-operation and Development (OECD).
in its final form economic report OECD, which revised its growth and inflation forecasts in December, also made harsh revisions in the UK’s outlook.
It now predicts that UK inflation will reach 4% this year, up 1.5 percentage points (percentage points) on the previous forecast, and that 2026 growth will weaken at 0.5%, down 0.5 points from the last assessment.
The revisions were the harshest among those made by the Paris-based OECD on major global economies during its period. interim economic outlook It was published on Thursday.
Of the G7 group of industrialized economies, only the United States is predicted to see higher inflation this year, with the OECD predicting the rate will reach 4.2%.
The US and Israel’s war with Iran has already had a dramatic impact on the global economy; The impact of rising international oil and gas prices led central banks to reduce their growth forecasts and increase inflation expectations.
The conflict in the Middle East is testing the resilience of the global economy with an outlook “surrounded by high uncertainty”, the OECD said on Thursday.
The OECD added that growth was supported by a strong momentum in technology-related investment and lower tariff rates than previously assumed, but Iran’s blocking of most energy shipments through the Strait of Hormuz and damage to regional energy infrastructure “led to a rise in energy prices and disrupted global supplies of energy and other key commodities such as fertilisers.”
“This raises costs, suppresses demand and increases inflationary pressures,” the OECD said.
The UK is more exposed to global energy price shock than many other countries because it imports most of its oil and gas and has limited gas storage facilities. The latest inflation report, published earlier this week and showing the consumer price index remaining unchanged at 3% in February, is now expected to rise.
The low growth outlook and high inflation trajectory pose a problem for the Bank of England, which is expected to cut interest rates from the current 3.75% this spring before the war begins; This was a welcome relief for debtors and businesses.
Although the war has met interest rate cut expectations for now, some economists say that if the war continues longer than expected, interest rate increases may be on the horizon.
Central banks “should remain vigilant and ensure that inflation expectations remain firmly anchored,” the OECD said, adding that “monetary policy adjustments may be needed if price pressures widen or growth prospects weaken significantly.”
The British government has announced it will help those most affected by energy price rises, but Chancellor of the Exchequer Rachel Reeves this week insisted there would be no blanket measures to support households with energy bills.
While financial markets are closely watching the Labor government in the UK for signs of fiscal indiscipline, Reeves reiterated that the government’s “fiscal rules”, which limit its borrowing and reduce the national debt, are in this direction. “ironclad” — and he’s not about to cave in response to the Iran war.
