UK economic growth forecast cut for this year

Chancellor Rachel Reeves has said her economic plan is working in an "uncertain" world, although the growth estimate for the UK has been lowered for this year.

The government's official forecaster, the Office for Budget Responsibility (OBR), cut its expected growth rate for 2026 to 1.1% from the 1.4% expansion it predicted just three months ago in the Autumn Budget.

The new forecast was announced by Reeves during her Spring Statement, and she added that the OBR now expected the rate of inflation - the pace at which prices rise - would be lower this year than previously thought.

However, the forecasts are based on information gathered before the conflict in the Middle East broke out.

Reeves said it was the government's duty to "secure our economy against shocks and protect families from the turbulence that we see beyond our borders".

Since Israel and the US launched strikes on Iran on Saturday morning and Tehran retaliated, oil and gas prices have risen significantly.

While the forecast for economic growth has been cut for this year, the predictions for 2027 and 2028 have been revised up to 1.6%, from 1.5%, for both years.

The OBR now expects inflation of 2.3% this year, down from its estimate of 2.5% in November.

But the big rises in the price of oil and gas over the past couple of days have raised questions over whether inflation will start to increase again if energy costs remain high.

If so, it could mean fewer interest rate cuts by the Bank of England this year.

Reeves said her "headroom" had increased from £21.7bn to £23.6bn. This is the buffer against her rule not to borrow to fund day-to-day spending in five years' time.

"On the face of it, [Reeves] has a bit more money to play with come the Budget in the autumn," said Paul Dales, chief UK economist at Capital Economics.

"But that could be swamped by events in the Middle East raising UK inflation and weakening UK GDP growth."