By David Milliken
LONDON, March 26 (Reuters) - Britain's economic growth prospects this year received the sharpest downgrade of any major economy in the OECD's interim forecast update on Thursday following the U.S.-Israeli war on Iran, while inflation is set to rise faster too.
The Paris-based international body cut its 2026 forecast for British economic growth by half a percentage point to 0.7%, compared with a 0.4 percentage point downgrade for the euro zone and a 0.3 percentage point upgrade for the United
States.
"Planned fiscal tightening and higher energy prices are anticipated to keep growth subdued in the United Kingdom, though the impact will be attenuated by lower policy rates next year," the OECD said in its report.
Following are further highlights from the report and other context:
* Britain's growth forecast for 2027 is unchanged at 1.3% * Britain's inflation forecast for 2026 is revised up by 1.5percentage points from December to 4.0%, the biggest upwardrevision of any large, advanced economy * UK inflation in 2027 is forecast to be 2.6%, 0.5percentage points higher than in December and above the Bank ofEngland's 2% target * Poorer UK households spend more on gas and electricitythan in other rich countries, though total energy spending makesup a smaller share of UK inflation than elsewhere * The OECD expects the BoE to keep interest rates unchangedthis year then cut in Q1 2027 as inflation eases * Britain's Office for Budget Responsibility, in forecastsfinalised just before the start of the conflict, predicted GDPgrowth of 1.1% this year and 1.6% in 2027 * The BoE this month forecast inflation would rise to3.0-3.5% over the next couple of quarters * Prime Minister Keir Starmer has made boosting growth andreducing the cost of living top goals for his government * Finance minister Rachel Reeves said the forecasts showedthe war in the Middle East was affecting Britain but she wouldstill focus on "regional growth, embracing AI and innovation,and establishing a closer relationship with the EU"(Reporting by David Milliken; editing by Suban Abdulla and Andy Bruce)
