The Organisation for Economic Cooperation and Development (OECD) has issued a stark warning that the United Kingdom's economy will suffer more severe damage from the ongoing Middle East conflict than any other major industrialised nation. In its latest economic assessment, the international thinktank highlighted how rising oil and gas prices, triggered by military actions against Iran, are creating substantial headwinds for British economic prospects.
Significant Growth Downgrade for UK Economy
The OECD has dramatically revised its growth forecast for the UK economy downward, projecting just 0.7% expansion this year compared to its previous December forecast of 1.2% for 2026. This represents a substantial 0.5 percentage point reduction that significantly outpaces the expected impacts on other European economies. France, Germany, and Italy are anticipated to experience much more modest growth reductions of approximately 0.2 percentage points each, reflecting their greater insulation from spiralling energy costs.
Multiple Economic Pressure Points
The OECD analysis identifies several interconnected factors contributing to the UK's particular vulnerability. A weakening jobs market and contraction in business investment towards the end of 2025 have created negative momentum heading into 2026. These domestic challenges are now being compounded by external shocks from the Middle East conflict, which has sent oil prices soaring from approximately $60 per barrel in January to around $100 currently.
Illustrating the UK's dependence on international trade and fuel imports, the OECD noted that Britain is likely to experience higher inflation than previously anticipated, further dampening economic prospects. The thinktank specifically pointed to Iran's effective closure of the Strait of Hormuz – a crucial shipping chokepoint handling about 20% of global oil production – as a primary driver of the energy price surge.
Global Economic Resilience Tested
While the OECD maintained its global growth forecast at 2.9% for the current period, matching its December projection, the organisation warned that the evolving Middle East conflict represents a significant test for worldwide economic resilience. The thinktank noted that "the breadth and duration of the conflict are very uncertain" but emphasised that prolonged higher energy prices would substantially increase business costs and consumer price inflation with adverse consequences for growth.
The report highlighted particular concern about "persistent disruptions to exports from the Middle East that raise energy prices even further than assumed and aggravate shortages of key commodities." Such scenarios, combined with potential disappointments in artificial intelligence investment returns, could trigger more extensive financial market repricing, weakening demand and raising financial stability risks globally.
Contrasting International Impacts
In a notable contrast to the UK's situation, the United States economy is projected to grow at a faster rate than previously anticipated. The OECD revised its US growth forecast upward to 2% for 2026, compared to 1.7% in December, citing reduced import tariffs following a Supreme Court ruling and increased demand for American oil due to the Iran conflict. However, the report cautioned that declining AI investments next year could cause the US economy to lose momentum, with growth projected to slow to 1.7% in 2027.
Other nations including Turkey, Brazil, and Mexico are expected to join the UK in experiencing significant impacts from rising fuel prices at consumer pumps, affecting household incomes and business profits. The OECD's projections assume that current energy market disruptions will moderate over time, with oil, gas, and fertiliser prices declining gradually from mid-2026 onward.
UK Government Response and Economic Context
UK Chancellor Rachel Reeves acknowledged the economic challenges posed by the Middle East conflict, stating that the war "will have an impact on our country" despite Britain not being a direct participant. Reeves emphasised the need to go "further to build a stronger, more secure economy" in response to these external pressures.
The government plans to enhance economic resilience through several measures including granting additional powers to regional mayors, embracing artificial intelligence and innovation, and establishing closer relationships with the European Union. These initiatives aim to counteract the negative economic momentum identified by the OECD, which noted UK economic growth of 1.3% last year compared to 0.9% in France and 0.4% in Germany.
The OECD concluded its assessment with cautious optimism, noting that "a surprisingly resilient business sector, an earlier-than-assumed resolution of the conflict in the Middle East that lowers energy prices, or broadening investment in artificial intelligence technologies that yields stronger productivity gains could push growth higher." However, the immediate outlook for the UK economy remains challenging, with the nation positioned to bear the heaviest economic burden among industrialised countries from the ongoing Middle East conflict.
