Overview
The OECD has revised down its near-term expectations for the United Kingdom, cutting its 2026 growth forecast to 0.7% from a previous 1.2% - the steepest downgrade it recorded among G20 members in its interim economic assessment. The Paris-based policy organisation attributes the revision to disruptions to energy supplies and higher commodity prices that have arisen from the US-Israel conflict with Iran.
Inflation and monetary policy outlook
The OECD now expects UK inflation to accelerate to 4% in 2026, up from 3.4% in 2025, a rate that it notes will be the second-highest among G7 economies and remain materially above the Bank of England's 2% goal. The report anticipates that consumer price inflation will moderate to 2.6% in the subsequent year, but that will still be above the central bank's target.
Against that backdrop, the OECD projects the Bank of England will keep its policy rate at 3.75% before enacting a quarter-point cut in early 2027 as inflation pressures abate.
Comparisons with other forecasts
The revised 0.7% growth estimate sits below the Office for Budget Responsibility's recently published forecast of 1.1% for 2026. The OECD further expects growth to pick up to 1.3% in 2027, which remains short of the OBR's 1.6% outlook that was prepared before the attacks on Iran.
Energy market disruptions and supply effects
The OECD links the downgrade directly to the impact of the regional conflict on global energy and commodity flows. Shipments through the Strait of Hormuz have been halted, and the episode has prompted closures or damage to energy infrastructure. These developments have driven a spike in energy prices and unsettled supplies of energy and related commodities, including fertilizers, amplifying costs across sectors that rely on those inputs.
Global outlook and assumptions
On a wider scale, the OECD expects global GDP growth to ease to 2.9% in 2026 before nudging up to 3.0% in 2027. Those projections assume that the current energy market disruption will moderate over time, with oil, gas and fertilizer prices declining gradually from mid-2026 onwards.
The report also packages a broader set of country forecasts: G20 inflation is seen at 4.0% in 2026 - 1.2 percentage points higher than previously expected - before softening to 2.7% in 2027. Core inflation among advanced G20 economies is projected to fall from 2.6% in 2026 to 2.3% in 2027.
Major economies
The OECD's outlook for major economies includes a US GDP growth projection of 2.0% in 2026 easing to 1.7% in 2027. The euro area is forecast to slow to 0.8% in 2026 and then to accelerate to 1.2% in 2027. China's growth is projected at 4.4% in 2026 and 4.3% in 2027.
Trade policy note
The report highlights that US bilateral tariff rates have declined following a Supreme Court ruling against tariffs imposed under the International Emergency Economic Powers Act, with notable reductions for Brazil, China and India. Despite those moves, the OECD notes that the overall US effective tariff rate remains higher than levels prevailing before 2025.
This assessment underscores how vulnerabilities in energy and commodity supply chains can translate into weaker growth and higher inflation for an economy like the UK, shaping both fiscal and monetary policy paths as well as sectoral pressures across energy, agriculture and broader manufacturing.