Latest forecasts from the Organisation for Economic Co-operation and Development are a mixed bag for Chancellor John Healey as he prepares for next month’s Budget
Britain’s economy is forecast to have done better-than-expected this year – but then slow in 2027.
The Organisation for Economic Co-operation and Development (OECD) is now predicting growth of 1.1% for 2026, up from the 0.9% it penciled in for the UK in June. It added that inflation is on track to average 3.1% this year, much lower than its previous prediction of 3.6%, but still the second highest of any G7 country.
However, that is where the good news ends, with the OECD forecasting the UK economy will slow to 1% next year given the expected ongoing energy shock from the Middle East war – faster than France, Italy and Japan but behind Germany and Canada.
Its latest update is a mixed bag for Chancellor John Healey and PM Andy Burnham ahead of next month’s Budget. Mr Healey’s big task is trying to boost the economy while also raising the taxes to meet public spending as well as tackling getting the country’s threadbare public finances in order.
Treasury minister Emma Reynolds said: “Despite unprecedented pressures and conflict in both the Middle East and in Europe, the UK economy is showing strong resilience.
“We will face these challenges together and we are already giving families space to breathe. We had the fastest growth in the G7 in the first half of the year and we are starting the big, long-term changes needed to create good jobs and growth in every postcode.”
The UK was not alone is defying predictions of a sharper economic hit this year. The OECD said global growth was “resilient in many countries” during 2026 despite the impact of the war in Iran.
However, it also indicated that recent spikes in energy prices linked to the prolonged conflict are likely to cause more inflation in the near term, before gradually easing next year. It comes after energy prices eased over the summer amid the US-Iran ceasefire period, but these have swung notably higher after the ceasefire collapsed in July.
The UK’s rate of inflation jumped to a five-month high of 3.1% last month, with the Bank of England predicting last week it could hit 3.75% by the end of this year and peak at around 4% in early 2027.
The OECD said it now expects inflation to slow to 2.6% next year, pointing to a shallower drop than previously expected, having forecast 2.4% in June. It predicted inflation across the G20 will average 3.6% next year, 0.5 percentage points ahead of its previous forecast.
Separately, the head of the International Monetary Fund warned the world’s advanced economies – including the UK – need to cut borrowing and reduce their debts . Kristalina Georgieva said global economic shocks were “pushing debt levels up like a staircase not to heaven” and that governments had taken “no action to contain that service cost”.
The UK is on track to spend more than £100billion this year on debt interest payments, with the country’s overall debt mountain hovering just below £3trillion.