Wednesday, March, 4 2026 - The UK government has cut its economic growth forecast for 2026, as Chancellor Rachel Reeves delivered a Spring Statement overshadowed by mounting concerns over the economic impact of the escalating conflict in Iran.
The fiscal update comes as Prime Minister Keir Starmer’s
Labour government attempts to revive sluggish growth, now facing fresh pressure
from rising energy prices linked to instability in the Middle East. Reeves said
the government’s economic strategy was “even more important in a world that in
the last few days has become yet more uncertain with unfolding conflict in Iran
and the Middle East”.
Britain’s economic growth is now projected to slow to 1.1
per cent in 2026, down from the 1.4 per cent forecast made in November when
Labour presented its annual budget. The UK economy expanded by 1.3 per cent
last year. The revised projections were published by the Office for Budget
Responsibility (OBR), which also upgraded growth forecasts for 2027 and 2028 to
1.6 per cent.
However, the OBR noted that the figures were finalised
before the United States and Israel launched strikes on Iran over the weekend,
followed by retaliatory action across the region. “Conflict in the Middle East,
which escalated as we were finalising this document, could have very
significant impacts on the global and UK economies,” the OBR said in its March
report.
Concerns are growing that disruption to oil and gas supplies
could trigger a renewed energy crisis, fuelling inflation and dampening
consumer spending.
The Bank of England last month forecast that inflation would
ease towards its two per cent target in April, helped by falling energy bills
offsetting rising water charges and other costs. The central bank left its
benchmark interest rate unchanged at 3.75 per cent in February but indicated
that further rate cuts were likely.
Since the outbreak of hostilities, however, analysts have
pared back expectations for interest rate reductions in 2026 as European gas
prices and global oil benchmarks surged. Labour has faced persistent challenges
in stimulating economic momentum since returning to power in July 2024, having
implemented tax increases in its first two budgets.
The government said unemployment, currently at a five-year
high of 5.2 per cent, is expected to peak later this year before gradually
declining through to 2030. With global energy markets under strain and
geopolitical uncertainty intensifying, officials acknowledged that the economic
outlook remains highly sensitive to developments in the Middle East.
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