Rural UK ‘particularly at risk’ of diesel shortages if Iran war continues | OECD
Rural areas in Britain are particularly at risk of diesel shortages if conflict in Iran continues to constrain supply, the Organization for Economic Co-operation and Development has warned.
The OECD has predicted economic growth in the UK this year will be 0.9 percent; It’s a modest increase from the 0.7 percent it had feared in March, when it last updated its forecast. It was stated that government spending will help support the economy in the short term.
Next year’s UK growth forecast is weaker at 1.1% instead of the previously expected 1.3%.
In its latest economic outlook, it highlighted potential shortfalls in key energy commodities, setting out specific risks to the UK from conflict which the OECD expects to negatively impact economic growth around the world.
The report suggested that “local diesel shortages could adversely affect activities, particularly in rural areas,” while low jet fuel stocks pose a risk to “high-value trade sectors such as the pharmaceutical industry and tourism.”
Chancellor Rachel Reeves has already intervened to support rural consumers dependent on domestic heating oil, which has risen in price since the conflict began.
In what appeared to be further evidence of the government’s concerns about potential supply shortages, ministers came under criticism for not implementing planned sanctions on jet fuel refined from Russian crude.
The OECD has warned that the UK also faces a significant challenge from rising fertilizer costs as a result of conflict spilling over into food prices.
It expects inflation to average 3.7% in 2026, peaking in the third quarter of the year, then falling next year but remaining above target at 2.4%.
But the OECD does not expect Bank of England policymakers to be forced to raise interest rates to counter rising prices; The slowdown in the labor market limits workers’ capacity to respond by increasing their wages and causes inflation to stabilize.
“The Bank of England is expected to recover from the energy price shock in 2026 as the rise in imported inflation is temporary and the increasing stagnation in the labor market softens domestic price pressures.”
Instead of an increase in interest rates, a quarter point reduction to 3.5 percent is envisaged. Despite financial markets’ expectations that borrowing costs will rise, Bank of England Governor Andrew Bailey recently downplayed the need for urgent action.
“Given the softness in the real economy and uncertainty about the size and duration of the shock, temporarily tolerating above-target inflation to provide some support to the real economy is an appropriate way to approach the trade-off,” he said last week.
Responding to the OECD statement, Reeves said: “The conflict in the Middle East poses a significant challenge to the world economy. Despite this, the OECD now expects inflation to be lower and growth higher in the UK than previously thought.”
“We have the right economic plan and changing course will put that progress at risk, and families and businesses will pay the price.”
