Britain is set to be hit harder than any major advanced economy by a slowdown driven by war in the Middle East, according to a damning new global forecast.
The Organisation for Economic Cooperation and Development (OECD) has slashed its UK growth forecast for this year by 0.5 percentage points to just 0.7 per cent.
And it has sharply increased its inflation outlook by 1.5 percentage points to 4 per cent.
In both cases it is the biggest hit for any member of the G7 group of advanced nations, which also includes the US, Canada, Japan, Germany, France and Italy.
Despite the findings, Chancellor Rachel Reeves claimed in a statement responding to the OECD forecast that Labour has put Britain ‘in a better position to protect the country’s finances and family finances from global instability’.
Yet according to the bleak report, Britain will grow more slowly than every G7 country except Italy this year. And inflation will be second highest in the group, behind only the United States.
The Tories described it as ‘a damning verdict on how vulnerable our economy is thanks to Labour’.
Chancellor Rachel Reeves claimed Labour had put Britain ‘in a better position’
It comes as the US-Israel war with Iran chokes off energy supplies from the Middle East, sending oil and gas prices soaring with knock-on effects for prices throughout the global economy.
The OECD said ‘planned fiscal tightening’, or tax hikes, as well as higher energy prices, would ‘keep growth subdued’ in the UK.
And the forecast noted that the impact of the energy crunch ‘will be felt differently across countries depending on where they are net energy importers or exporters’.
That will pile further pressure on Labour to overrule Energy Secretary Ed Miliband’s net zero drive.
It comes at a time when North Sea oil and gas producers say the government’s windfall tax on the sector is crippling investment and making Britain increasingly dominant on imports.
Shadow chancellor Sir Mel Stride said: ‘This downgrade from the OECD is a damning verdict on how vulnerable our economy is thanks to Labour.
‘Rachel Reeves has ramped up borrowing, spending and taxes. As a result we have stagnant growth, while inflation, unemployment, the deficit and debt interest costs have all shot up. At the same time, Ed Miliband’s net zero obsession has left us reliant on imported energy instead of using our own supplies in the North Sea.
‘Rachel Reeves can blame the world all she wants, but it’s her choices that have weakened our economy at the worst possible moment.’
The OECD forecast says that the Middle East will ‘test the resilience of the global economy’ disrupting both the supply of energy and key commodities such as fertilisers, as well as sparking volatility in financial markets.
‘The breadth and duration of the conflict are very uncertain, but a prolonged period of higher energy prices will add markedly to business costs and raise consumer price inflation, with adverse consequences for growth,’ according to the report.
The report adds that if the conflict continues for a prolonged period, the prospects for growth and inflation will be even worse, raising the possibility for a major sell-off in financial markets.
And it notes that even before the war broke out, inflation was running above target in a number of countries including the UK.
It comes a day after official figures showed UK inflation was at a stubbornly-high 3 per cent in February, the highest in the G7, and up from 2 per cent when Labour came to power.
That added to the dismal picture for the UK economy, with unemployment at a five-year high, borrowing at record levels outside of the pandemic, and growth at a standstill.
Firms say they are being battered by tax hikes, minimum wage increases, and Labour’s botched business rates reform.
And private sector activity is expected to shrink over coming months, according to a new report from the Confederation of British Industry, extending a run of gloomy sentiment going back to late 2024 just after Labour came to power.
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