The UK is expected to face the largest decline in economic growth among G20 nations due to the Iran war, according to the Organisation for Economic Co-operation and Development (OECD).
The OECD forecasts the UK's economic growth to be 0.7% this year, down from its previous forecast of 1.2%. Inflation is also predicted to be higher than expected, at 4%, up from the previous estimate of 2.5%. This information was reported by the BBC.
The OECD has downgraded forecasts for many of the world's biggest economies due to the US-Israel war with Iran. A prolonged conflict could trigger significant energy shortages globally, it warned.
Economic Impact
Wholesale oil and gas prices have soared since the war started, due to disrupted supply from the effective closure of the Strait of Hormuz. Experts fear a prolonged period of high energy prices will dampen growth, fuel inflation, and make interest rate cuts less likely.
The effects are already being felt in the UK, with higher petrol and diesel prices, and increased costs for heating oil users. Mortgage lenders have responded by raising rates and axing hundreds of deals.
Government Response
Chancellor Rachel Reeves said the Iran war would affect the UK, but the government has the right economic plan in place. However, shadow chancellor Sir Mel Stride called the downgrade a damning verdict on the vulnerability of the UK economy.
The OECD's outlook aims to give a guide to what is most likely to happen in the future, but forecasts can be incorrect and do change given the many factors that affect economic growth. The organisation said its predictions depend on the assumption that the current energy market disruption eases, with oil, gas, and fertiliser prices falling from summer onwards.
Business Impact
UK retailer M&S chief executive Stuart Machin said policy costs on the company's energy bill had skyrocketed in recent years and were unsustainable for businesses. Earlier, UK clothing retailer Next said it was likely to experience £15m in additional costs if the Iran war lasts for three months.
