A prominent British think tank has revised its economic outlook, predicting significant slowdown for the UK economy this year and next due to the conflict involving Iran, with inflation expected to remain above the central bank's target until 2028. The forecast was released just one day before the Bank of England's interest rate decision.
The National Institute of Economic and Social Research stated on Wednesday that, driven by surging oil and gas prices resulting from Middle East tensions, the UK's inflation rate is projected to increase from the current 3.3% to 4.1% by early 2027. The institute further indicated that UK inflation, which has been among the highest in advanced economies for much of the past four years, is not expected to return to the Bank of England's 2% target until 2028.
Economic growth for the current year is now forecast at just 0.9%, with a rate of 1% anticipated for 2027. These figures represent a substantial downgrade from the think tank's February projections, which had estimated growth rates of 1.4% for this year and 1.3% for the next.
David Acman, the institute's director, commented, "The Middle East conflict has starkly revealed that the UK economy remains highly vulnerable and susceptible to shocks from global energy market volatility." The think tank's growth forecast for 2026 is slightly more optimistic than the latest projection from the International Monetary Fund.
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