The UK economy is being held back by renewed energy inflation, a direct consequence of the Middle East conflict, an influential economic body has said.
In a new report on the nation’s economy, the Organisation of Economic Co-operation and Development (OECD) predicted that the UK’s gross domestic product (GDP) will slow to 0.9 per cent in 2026, a fall from 1.4 per cent last year.
The surge in energy costs, sparked by the US-Israel conflict with Iran, has weakened prospects for growth this year by weighing on households and firms, the OECD said.
The conflict has also highlighted the economy’s exposure to volatile fossil fuel prices, underlining the need to decarbonise power generation and accelerate electrification, according to the body.
The OECD report also found that regional disparities are hindering living standards and overall economic performance, particularly evident in higher unemployment and stretched job opportunities for young people.
The OECD said the Government’s pro-growth ambitions “appropriately target long-standing weaknesses in productivity and persistent regional disparities”.
“However, renewed geopolitical tensions and higher energy prices have compounded challenges for economic activity, inflation and public finances,” the report read.
The organisation said it was important to keep up the momentum with policy reforms for the pro-growth agenda to be successful.
It comes as Andy Burnham, who is set to replace Sir Keir Starmer as prime minister next week, plans to introduce a “No 10 North” based in Manchester. The former Greater Manchester mayor said he wants to transform Britain by transferring power out of Whitehall and giving regions the ability to control essential utilities, transport and housing.
Chancellor Rachel Reeves said: “The OECD agrees that we have restored stability, putting the economy in a much stronger position than it was two years ago.
“We are forecast to be the fastest-growing G7 economy in Europe this year and next, and, for the first time since 2004, we are forecast to borrow less this year than the G7 average.
“In my Mansion House speech, I set out where the opportunities for growth lie: backing Britain as a global leader in AI, building a strong relationship with the EU, and unlocking investment and opportunity in every region of this country.
“We have the right economic plan to build a stronger, more secure Britain.”
