OECD Lifts UK 2026 Growth Forecast to 1.1%, Cuts Inflation to 3.1%

The OECD cut its forecast for UK inflation this year to 3.1% from 3.7% and nudged up its growth projection to 1.1%, the Paris-based body said on Wednesday, citing newly announced government support measures that are expected to underpin consumer spending. The 1.1% figure compares with 0.9% in the OECD’s June outlook and 0.7% in March, according to Theguardian‘s live coverage of the release.

Chief Secretary to the Treasury Emma Reynolds responded that the economy was showing resilience despite conflict in the Middle East and Europe, and said the government was already giving families room to breathe. She pointed to the fastest growth in the G7 in the first half of the year and to longer-term changes aimed at creating jobs.

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Key facts

• The OECD lowered its 2026 UK inflation forecast to 3.1% from 3.7% and raised its growth forecast to 1.1%, up from 0.9% in June and 0.7% in March.
• Brent crude fell about $1 to $98.32 a barrel, a sixth straight session of declines and the longest losing run since August 2025, after Saudi Arabia reportedly restarted its east-west pipeline and may have resumed exports from Yanbu.
• IMF managing director Kristalina Georgieva told the BBC that shocks had been pushing debt levels up and that governments had taken no action to contain the service cost.
• The UK flash composite output index slipped to 51.7 in September from 52.5 in August, a three-month low, while the eurozone composite rose to 53.1, a three-and-a-half-year high.
• The pound fell below $1.33, dipping 0.2% to $1.3316, as the dollar strengthened on expectations of US rate increases.

Global growth holds up as conflict drags on

The OECD said the world economy had absorbed the strain of the US-Israeli war on Iran, which began in late February, better than initially feared, helped by releases from global oil stockpiles, a sharp drop in Chinese energy imports and a switch toward other fuels including coal. It put global growth at 2.9% this year, a 0.1 percentage point upgrade from 2.8% in June, while trimming its 2027 view to 3% from 3.1%. The body cautioned that the outlook depends heavily on whether a durable resolution to the Middle East conflict is reached, warning that renewed or more persistent disruption could bring both higher inflation and weaker growth.

Oil had fallen back below $100 a barrel on Tuesday on hopes of a US-Iran agreement. Donald Trump spoke of progress in talks in New York but also threatened to “annihilate” Iran if no deal emerged, and Iranian president Masoud Pezeshkian was due to address the UN general assembly later on Wednesday.

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Business surveys point in different directions

Separate PMI surveys painted a mixed picture. Chris Williamson, chief business economist at S&P Global Market Intelligence, said the UK reading showed a “worrying combination” of sluggish growth and intensifying price pressures, with output growth consistent with quarterly expansion of just 0.1%. In Germany, the flash composite index rose to 53.8 from 51.8, an 11-month high, and in France activity returned to growth with the composite at 51.2. Across the eurozone, Williamson said faster growth pointed to GDP rising at a quarterly rate of 0.4%, with manufacturing led by Germany benefiting from AI and defence spending.

Why it matters

The UK upgrade matters because it arrives alongside cost pressures rather than instead of them: input price inflation accelerated for a second month to its highest since June, and companies cited energy, fuel and raw material costs. That combination keeps the Bank of England’s policy path uncertain even as the OECD flags support for household consumption. For the eurozone, the strength of the September survey data strengthens the case for further tightening, with Williamson saying an October rate increase is firmly on the table.

What to watch

The next UK budget, due next month, is where Prime Minister Andy Burnham has hinted at further measures to give consumers breathing space, after a VAT cut on electricity bills announced in July. Whether the GCC-style Gulf supply restart holds, and whether US-Iran talks produce a deal, will determine if the oil slide continues.

These forecasts and price moves are not financial advice; commodity, currency and rate markets remain volatile and can reverse quickly.

Written by

Benjamin

Benjamin Carter covers business, finance, and the stock market for StockPil, focusing on the trends and data that matter to everyday investors.

Source: The Guardian