The Organisation for Economic Cooperation and Development (OECD) has warned that Britain faces the largest economic cost of all major global economies from the conflict with Iran, with growth slashed and inflation expected to surge to 4 per cent this year. The 2026 growth forecast for the UK has been downgraded to 0.7 per cent from a previous estimate of 1.2 per cent – the largest drop of any G20 nation.
The warning came as US President Donald Trump launched a fresh tirade against Prime Minister Sir Keir Starmer over his stance on the war, denigrating British warships as “toys”. Trump expressed disappointment at Starmer's refusal to allow US forces to use RAF bases in the initial wave of attacks, and criticised the aircraft carriers HMS Queen Elizabeth and HMS Prince of Wales.
As well as oil and gas supply disruption caused by the Iran war, fertiliser shortages could send food prices soaring if the conflict is long-lasting, the OECD warned. UK inflation is now expected to average 4 per cent in 2026, up from the 2.5 per cent forecast in December, before dropping to 2.6 per cent in 2027 – still higher than the previous projection of 2.1 per cent.
Across the G20 group of advanced nations, economic growth is projected to weaken in the near term before gradually rising again through 2027. However, an “unexpected sharp increase in energy prices” could knock a further 0.4 per cent off European growth this year and nearly 0.8 per cent next year, pushing some of Europe’s largest economies, such as the UK, closer to a potential recession.
The OECD said governments should encourage homes and businesses to be more efficient with their energy use and backed Chancellor Rachel Reeves’ plan to support households most in need. In the longer term, it argued that countries need to do more to reduce dependence on fossil fuel imports, which make them vulnerable to geopolitical shocks.
Hours after the report was released, Ms Reeves left a meeting with banks and building societies announcing they had agreed to proactively contact 1.6 million customers whose fixed-rate mortgage deals end before the end of the year and remind them of the mortgage charter, which offers support including a temporary breathing space and measures like a move to interest-only payments for six months.
