Rise in energy and petrol prices due to Iran war holding back UK economy, OECD warns
The UK economy is being left behind by renewed energy inflation as a direct result of the conflict in the Middle East, an influential economic body has said.
The Organization for Economic Co-operation and Development (OECD) has predicted Britain’s gross domestic product (GDP) will slow to 0.9 percent in 2026 from 1.4 percent last year, in a new report on the country’s economy.
The OECD stated that the increase in energy costs caused by the conflict between the USA-Israel and Iran has weakened this year’s growth expectations by putting pressure on households and companies.
The conflict also exposed the economy’s exposure to volatile fossil fuel prices and underlined the need to decarbonize energy production and accelerate electrification, according to the organization.
The OECD report also found that regional inequalities hinder living standards and overall economic performance, particularly evident in high unemployment and limited job opportunities for young people.
The OECD said the Government’s pro-growth targets “appropriately target long-standing weaknesses in productivity and persistent regional inequalities”.
“However, renewed geopolitical tensions and high energy prices have increased challenges for economic activity, inflation and public finances,” the report said.
The organization said it was important to maintain momentum with policy reforms for the pro-growth agenda to succeed.
Andy Burnham, who will replace Sir Keir Starmer as prime minister next week, plans to establish a “No 10 North” based in Manchester. The former Greater Manchester mayor said he wanted to transform Britain by transferring power from Whitehall and giving regions the ability to control basic services, transport and housing.
Chancellor Rachel Reeves said: “The OECD recognizes that we have restored stability, putting the economy in a much stronger position than it was two years ago.
“We are expected to be the fastest growing G7 economy in Europe this year and next, and we are expected to borrow less than the G7 average this year for the first time since 2004.
“In my Mansion House speech I set out where the opportunities for growth lie: supporting Britain as a global leader in AI, building a strong relationship with the EU and unlocking investment and opportunity in every part of this country.
“We have the right economic plan to build a stronger, more secure Britain.”
