The UK economy is now expected to grow by just 1% next year, a sharp cut from the previous forecast of 1.6%, as the impact of the Iran war weighs on the outlook.
The Office for Budget Responsibility (OBR) published the revised projections alongside the autumn Budget, warning that accelerating inflation is putting pressure on households and businesses.
Growth projections revised
The watchdog said UK gross domestic product (GDP) is set to improve by 1.2% this year, up from a previous estimate of 1.1%. However, growth is then expected to slow to 1% next year.
This represents a significant downgrade to the growth outlook, with the OBR having previously predicted the economy would grow by 1.6% for the year.
Long-term outlook and fiscal headroom
Growth is expected to lift back to 1.6% in 2028, followed by rises of 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031, pointing to a slightly stronger outlook for the final years of the forecast period than previously expected.
Chancellor John Healey also confirmed on Wednesday that he will reduce the UK's fiscal headroom to £15 billion in 2029/30, from a previous prediction of £26 billion, after witnessing a jump in borrowing costs.
The weaker headroom, which will improve to £22 billion by 2031, was linked to a £14 billion jump in debt interest costs for the past year.
