Inflation projected to peak at 4.3% early next year
Treasury sources have confirmed that internal modelling presented to Prime Minister Andy Burnham and Chancellor John Healey suggests UK GDP growth could be as low as 0.3% in 2027 if disruption in the Strait of Hormuz continues until the end of 2026, according to BBC News. The modelling was first reported by Bloomberg.
The figures come from a reasonable worst-case scenario rather than a central forecast. In that scenario, the Strait of Hormuz would remain effectively closed for the next five months and no permanent US-Iran peace deal would be reached until the new year; government officials said they routinely plan for all possible scenarios.
Under that scenario, the Treasury modelling put UK economic growth at 0.9% over 2026 — slightly under the 1.1% forecast the Office for Budget Responsibility (OBR) issued in March.
For 2027, the projection drops to just 0.3%, far below the OBR’s 1.6% forecast.
The modelling also shows inflation peaking at 4.3% in the first three months of next year. Inflation currently stands at 2.6%, just above the Bank of England’s 2% target.
The UK economy saw a strong start to the year, but growth then faltered as the conflict in the Middle East affected some businesses. The Iran war has pushed up oil and fuel prices and disrupted supply chains.
On Thursday, official figures will show how much the economy grew between April and June of this year. Economists are expecting growth of 0.4% for the three months.