Britain has suffered the sharpest economic downgrade of any major nation following the Middle East conflict.
The Organisation for Economic Co‑operation and Development (OECD) has cut its 2026 growth forecast for the UK by half a percentage point, with output now expected to rise by just 0.7 per cent — the largest downgrade among member countries.
The eurozone and South Korea recorded the next biggest reductions.
These figures represent the first detailed assessment from a major international body of the conflict’s economic fallout.
UK consumer price inflation (CPI) is now forecast to average four per cent in 2026, compared with a current rate of three per cent and 1.5 percentage points higher than the OECD’s December projection.
The UK’s downgrade reflects its heavy reliance on imported energy, with rising gas prices expected to squeeze both households and businesses.
Higher energy costs are likely to weigh on living standards, the OECD said.
By contrast, the United States, a major exporter of oil and gas, is expected to benefit from elevated global prices.
Chancellor Rachel Reeves acknowledged the economic impact of the conflict
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The organisation said rising crude oil prices were a key driver of the downgrades, alongside increases in related commodities such as jet fuel, diesel and fertilisers.
“The breadth and duration of the conflict are very uncertain,” it warned. “A prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth.”
It cautioned that extended disruption to Middle Eastern energy infrastructure and shipping routes could have a more severe impact than currently projected, potentially leading to energy shortages and further weakening global growth.
Fertiliser prices have also climbed since hostilities escalated in late February.
Experts have cited the war as exposing Britains over-reliance on gulf oil
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GETTYThe Middle East is a major producer of urea and ammonia, and supply constraints are expected to push global food prices higher.
Several Asian Governments have already introduced precautionary measures, including energy rationing for businesses in India and export restrictions in China.
The OECD said central banks should remain focused on controlling inflation as global price pressures intensify.
It also urged Governments to reduce reliance on fossil fuel imports and ensure targeted energy support reaches the most vulnerable households.
Chancellor Rachel Reeves acknowledged the economic impact of the conflict.
“The war in the Middle East is not one that we started, nor is it a war that we have joined. But it is a war that will have an impact on our country,” she said.
Ms Reeves argued that previous economic decisions had strengthened the UK’s resilience.
“In an uncertain world we have the right economic plan,” she said, highlighting priorities including boosting regional growth, investing in AI and innovation, and strengthening ties with the European Union.