EPA/ShutterstockThe UK is facing the biggest hit to growth from the Iran war out of the G20 major economies, according to an influential global policy group.
Economic growth in the UK this year is forecast to be 0.7%, the Organisation of Economic Co-operation and Development (OECD) said, down from its previous forecast of 1.2%. Inflation is also predicted to be higher than expected.
The OECD has downgraded forecasts for many of the world's biggest economies due to the US-Israel war with Iran.
A prolonged conflict could trigger "significant energy shortages" globally, it warned, while if the sharp rise in fertiliser prices is sustained crop yields will be impacted and food prices will soar next year.
The OECD's global growth forecast for this year is unchanged at 2.9%, but it predicts inflation across the G20 countries will be 4%, sharply up from its previous forecast of 2.8%.
The OECD now forecasts UK inflation will hit 4% this year, up from the previous estimate of 2.5%. It then forecasts inflation to drop to 2.6% in 2027 - still up from its previous projection of 2.1%.
Among G7 countries, only the US is predicted to have higher inflation than the UK in the forecast, while only Italy is expected to see weaker growth.
In early March the UK government's official forecaster, the Office for Budget Responsibility (OBR), cut its expected growth rate for the UK this year to 1.1% from the 1.4% it predicted in last year's Budget.
But this forecast was made before the Iran war, which the OBR said could have a "very significant" impact on economies.
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The OECD said its predictions depend on the assumption that the current energy market disruption eases, with oil, gas and fertiliser prices falling from summer onwards.
It said measures from governments to cushion households from the impact of higher energy prices "should be timely, well-targeted on households most in need and viable firms, preserve incentives to lower energy use and have clear expiry mechanisms".
Policies that improve domestic energy use and lower reliance on imported fossil fuels over the medium term were a priority, it added.
The forecast comes as UK clothing retailer Next warned it was likely to have to raise prices for customers if the Iran war persists.
It said overseas sales had been strong up to when the conflict in the Middle East broke out, and instability may continue to restrain growth in that region.
"It is also likely to have knock-on effects on costs, selling prices and consumer demand in the rest of the business," Next said in guidance for 2026.
The retailer says it is likely to experience £15m in additional costs - such as fuel and air freight - if the conflict lasts for three months.
These have been offset by savings elsewhere, but if the war continues for longer than three months "we will begin to pass costs through as higher pricing – but for today that remains a contingency not a plan".
