Melissa Lawford – The Telegraph Oct 28, 2026
The UK’s growth forecast for next year has been cut as war in the Middle East hits households and businesses.
National GDP will grow by 1pc in 2027, 0.5 percentage points less than the Government’s fiscal watchdog forecast back in March.
The Office for Budget Responsibility (OBR) blamed higher energy prices and inflation, which are putting pressure on household incomes.
In its forecast, the OBR said: “We anticipate growth of around 1pc in 2027 – down about half a percentage point from March – as it takes time for higher global energy prices and increased interest rates to weigh on activity.”
The watchdog’s March forecast was finalised just before Donald Trump’s attack on Iran on Feb 28, which sent oil prices soaring above $115 (£91) per barrel.
Since March, near-term pricing for oil and gas has climbed by 30pc and 80pc respectively, with significant implications for inflation and interest rates.
The OBR now expects that inflation will peak at 3.75pc early next year and will be about 1.5 percentage points higher across 2027 than previously expected.
Bigger price rises mean that households will experience no growth in their real earnings in 2027 or 2028, the OBR added.
Higher inflation will also lead to interest rate rises from the Bank of England.
The OBR expects the Bank will raise interest rates to 4.25pc by the middle of next year, up from 3.75pc today and 0.75 percentage points higher than the OBR had forecast back in March.
The OBR said: “The UK’s economic position remains challenging. A series of major adverse shocks since the global financial crisis, interacting with underlying structural trends, have contributed to persistently weak growth in per person GDP, episodes of sustained high inflation and subdued growth in real household disposable incomes.
“A broad range of factors, many of which originate outside the UK, will influence the UK’s future economic performance.”
However, the OBR upgraded its forecast for GDP growth this year to 1.2pc, up from the 1.1pc growth it had forecast in March.
John Healey, the Chancellor, hailed this in his Budget speech on Wednesday as a “sign of resilience in the UK economy”.
Budget 2026: Key points at a glance
Energy prices are expected to fall sharply next year, which should boost growth in the years ahead, the OBR said.
It has forecast growth of 1.6pc in 2028, 1.8pc in 2029, 1.7pc in 2030 and 1.6pc in 2031, meaning UK GDP will be at a similar level by the end of the forecast period as the OBR expected back in March.
However, in a blow for employment, Ladbrokes owner Entain on Wednesday signalled it could close betting shops after being hit with a £25m annual tax increase from the Budget.
The warning follows an increase to the machine games duty from 20pc to 25pc, which the Treasury expects to raise an extra £100m annually.
The gambling giant said it would consider “estate rationalisation” as part of efforts to offset the higher taxes by the end of 2028, alongside wider cost-cutting measures.
Stella David, chief executive, said: “This is another disappointing decision by the Government.”
Separately, the Government announced a major crackdown on vape shops after tough new measures were unveiled in the Budget to stop their proliferation in Britain’s “hollowed out” town centres.
Under the proposal, new vape shops will have to seek planning permission from councils, giving local authorities power to control the number and location of openings.
In another significant move, vape shops will no longer be eligible for business rates reliefs from April 2027. They will also be stripped of their entitlement to small business rates relief.