Assuming current volatility is temporary and energy prices ease from mid-2026, UK GDP is forecast to grow by 0.7% this year, then by 1.3% in 2027.
The Organisation for Economic Co-operation and Development (OECD) has maintained its prediction of 2.9% GDP growth in 2026, but downgraded 2027 to 3% from 3.1%.
In the OECD's interim report, released today (26 March), the crucial theme was "testing resilience" as growth and momentum in technology-related investment fought against the closing of the Strait of Hormuz and damage to energy infrastructure.
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Assuming current volatility is temporary and energy prices ease from mid-2026, UK GDP is forecast to grow by 0.7% this year, then by 1.3% in 2027.
Chancellor of the Exchequer Rachel Reeves said: "The war in the Middle East is not one that we started, nor is it a war that we have joined. But it is a war that will have an impact on our country."
She added that the UK has the "right economic plan" which includes "empowering regional growth, embracing AI and innovation, and establishing a closer relationship with the EU".
The US' GDP is forecast to grow by 2% in 2026, but only 1.7% the year after, as the G20's GDP is forecast to grow 3% in both years.
India is expected to witness the highest GDP growth in 2026 and 2027, with 6.1% and 6.4%, respectively.
Inflation in the G20 is now expected to be 4% this year, 1.4 percentage points higher than expected, before dropping to 2.7% in 2027 as energy prices ease.
The report stated that markets assume a drop in energy prices soon, but there could be drastic consequences if that is not the case.
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"Simulations in the report explore a scenario where oil and gas prices rise well above baseline projections - by around a quarter in the first year and remaining elevated thereafter - combined with tighter global financial conditions," it said.
"In this case, global GDP could be around 0.5% lower by the second year, while inflation would be higher by about 0.7 percentage points in the first year and 0.9 percentage points in the second."
Lindsay James, investment strategist at Quilter, said: "While the UK should still see some growth this year, albeit minimal, it will depend heavily on how the conflict in Iran plays out. There is a risk that a resolution could take months rather than weeks unless anything changes soon, and we can expect energy prices to remain structurally higher for some time even after that.
"It remains the case that the situation could worsen further still, which would have a significant knock-on effect on economies. While it is hoped that a resolution will be achieved sooner rather than later, there is a risk that the OECD's outlook becomes a best case scenario," she added.
