UK growth forecast slashed to 1% for next year amid Iran war impact

John Healey leaves 11 Downing Street, London, with his ministerial red box sen from waist down

placeholder image — John Healey leaves 11 Downing Street, London, with his ministerial red box sen from waist down

The Office for Budget Responsibility said UK gross domestic product (GDP) is set to improve by 1.2% this year and slow in 2027.

UK economic growth projections for next year have been cut sharply by the government’s official forecaster as the Chancellor warned over the impact of “global economic storms” linked to the Iran war.

The economy is now expected to slow next year as accelerating inflation puts pressure on households and businesses, according to new forecasts published alongside the autumn Budget.

The Office for Budget Responsibility (OBR) said UK gross domestic product (GDP) is set to improve by 1.2% this year, up from a previous estimate of 1.1%.

However, the watchdog said the economy is then expected to see growth slow to 1% next year.

It represents a significant cut to the growth outlook, with the watchdog having previously predicted the economy would grow by 1.6% for the year.

Growth is expected to lift back to 1.6% in 2028, followed by rises of 1.8% in 2029, 1.7% in 2030 and 1.6% in 2031, pointing to a slightly stronger outlook for the final years of the forecast period than previously expected.

Chancellor John Healey also confirmed on Wednesday that he will reduce the UK’s fiscal headroom to £15 billion in 2029/30, from a previous prediction of £26 billion, after witnessing a jump in borrowing costs.

The weaker headroom, which will improve to £22 billion by 2031, was linked to a £14 billion jump in debt interest costs for the past year.