Economy
UK growth forecast cut as energy shock threatens inflation and living standards
The UK’s fiscal watchdog has sharply reduced its growth forecast for next year as the US-Iran conflict drives energy prices higher. The Office for Budget Responsibility expects inflation to peak at 3.8% in 2027, while interest rates could rise to 4.5%. Higher energy and borrowing costs are expected to squeeze living standards, particularly for lower-income households, and increase government debt costs. The forecast remains unusually uncertain because the conflict’s duration could materially change the outlook.
Editorial summary · Publisher article
What matters
- The OBR cut next year’s growth forecast from 1.6% to 1%.
- Inflation is expected to average 3.4% next year and peak at 3.8% in 2027.
- Rates are currently 3.75% and could rise as high as 4.5%.
- Lower-income households face a larger hit because energy consumes more of their budgets.
Context & caveats
- The OBR describes its projections as a best estimate and highlights significant uncertainty linked to the Middle East conflict.
Why this made the edition
Detailed account of the OBR forecast, its mechanisms and major uncertainties, with meaningful implications for households, borrowing and public finances.
Source material