The Organisation for Economic Cooperation and Development (OECD) has warned that the conflict in the Middle East will damage the UK's economy more than any other industrialised nation, with growth forecasts slashed and inflation expected to rise. In its first major assessment of the economic impact of the US-Israel attacks on Iran, the OECD downgraded UK growth for 2026 to just 0.7%, down from its December forecast of 1.2%.
The UK's heavy reliance on international trade and fuel imports makes it particularly vulnerable to soaring energy prices, the OECD said. The 0.5 percentage point cut in UK growth is far steeper than the 0.2 percentage point reductions expected for France, Germany and Italy, which are more insulated from spiralling energy costs.
The OECD attributed the downgrade to a weakening UK jobs market, a contraction in business investment towards the end of 2025, and the shock from rising oil and gas prices following the closure of the Strait of Hormuz. Oil prices have surged from around $60 a barrel in January to about $100 this week after Iran effectively shut the crucial shipping chokepoint.
While the global economy is expected to grow by 2.9% this year, unchanged from December's forecast, the OECD warned that a prolonged period of higher energy prices would add to business costs and raise consumer price inflation, with adverse consequences for growth. The forecast for 2027 was cut from 3.1% to 3%.
The US economy, by contrast, is expected to grow faster than previously thought, at 2% in 2026, up from 1.7%, thanks to a Supreme Court ruling reducing import tariffs and increased demand for US oil. However, the OECD noted significant downside risks from persistent disruptions to Middle East exports and potential repricing in financial markets.
