UK economy faces slower growth as Middle East tensions threaten forecasts
Chancellor Rachel Reeves delivered her Spring Statement as tensions in the Middle East continued to rise. Against this backdrop, she highlighted progress in her economic plan, pointing to lower inflation and interest rates. Yet, the Office for Budget Responsibility (OBR) warned that ongoing conflict could disrupt forecasts.
The OBR now expects GDP growth to slow to 1.1 percent in 2026, down from earlier projections. It also forecast that public sector net borrowing would drop to £132.7 billion by 2026/27. Meanwhile, unemployment is set to peak at 5.3 percent in the same year.
Inflation is predicted to ease to 2.3 percent by 2026, though the OBR cautioned that escalating conflict could push prices higher. The Bank of England's base rate is anticipated to fall to 3.3 percent by late 2026, offering some relief to borrowers.
Reeves emphasised that her growth strategy was taking effect, with inflation and interest rates both declining. However, the OBR also noted that tax receipts, as a share of GDP, would climb to a record 38.5 percent by 2030/31.
The OBR's latest figures did not account for any potential impact on global energy prices from the recent military escalations. Reports focused on US-Israel strikes on Iran, Israeli troop movements near Lebanon, and broader regional instability—but made no mention of oil markets or economic consequences.
The Spring Statement outlined a mixed economic outlook, with slower growth and higher taxes offset by lower inflation and borrowing. However, the OBR stressed that further instability in the Middle East could alter these projections. The government's next steps will depend on how the conflict evolves and its wider economic effects.
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