3rd Mar 2026 13:50
(Alliance News) - The Office for Budget Responsibility on Tuesday warned the conflict in the Middle East could have very significant impacts on the UK economy as it adjusted growth and inflation expectations for the current year.
The OBR now forecasts economic growth of 1.1% in 2026, down from 1.4% it projected in November. It now expects growth to pick up to 1.6% in 2027 and 2028, ahead of its prior 1.5% expectation, before easing to 1.5% in 2029 and 2030, unchanged.
Inflation, measured by the consumer price index, is seen falling to 2.3% in 2026 and to 2.0% in the four years thereafter.
The 2026 inflation forecast is 0.2 percentage points lower than in November, the OBR noted, driven by greater slack in the economy, and lower food and energy prices.
The OBR forecast that the 2% target for the UK inflation rate will be met in "late 2026".
Nominal weekly wage growth is forecast to slow to around 3.5% in 2026 and then average 2.25% a year, broadly in line with the November forecast, contributing to lower inflation.
Public sector net borrowing is projected to fall in the central forecast from 5.2% of GDP in 2024 to 2025 to 4.3% this fiscal year and then to 1.6% of GDP in 2030 to 2031.
This is a slightly faster pace of decline than in the November forecast, the OBR said, with borrowing revised down by GBP8 billion in 2030 to 2031 compared to November, largely due to an improved receipts forecast.
The OBR stressed there are significant risks around its forecast, "with plausible outcomes both substantially above and below the central projection."
"Conflict in the Middle East, which escalated as we were finalising this document, could have very significant impacts on the global and UK economies," the OBR added.
The OBR expects the unemployment rate to peak at 5.33% in 2026, and then fall gradually to 4.1% by 2030.
By Jeremy Cutler, Alliance News reporter
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