Middle East conflict overshadows Spring Statement

At a glance

• The OBR has updated its growth forecasts for the UK economy. It has downgraded growth in 2026 from 1.4% to 1.1%. However, it predicts faster annual growth of 1.6% for 2027 and 2028, and 1.9% for 2029 and 2030.
• Expectations of an interest rate cut in March have fallen substantially following the conflict in the Middle East.
• Inflation is predicted to reach the government’s 2% target by the end of 2026.

Chancellor Rachel Reeves has delivered her Spring Statement against the backdrop of intensifying conflict in Iran and the Middle East. 

Reeves hailed the improved growth forecasts published by the Office for Budget Responsibility (OBR), saying this was evidence that her economic plan was working.

But growing uncertainty around rising oil prices due to the war in Iran, and the knock on impact for inflation and interest rates, could yet derail growth. Improved forecast for UK growth

Reeves delivered her Spring Statement on 3 March. She unveiled the OBR’s improved forecast for UK growth, which it estimates will reach 1.9% by 2029, albeit with a downgrade for 2026 from 1.4% to 1.1%.

The government hopes the figures indicate the green shoots of economic recovery. But the OBR was clear to include a strong caveat to its research, stating the conflict in the Middle East had escalated while it was finalising its report. It added the conflict could have ‘very significant impacts on the global and UK economies.¹

Following the escalation of the conflict and fears over oil prices and inflation, market experts are now less bullish about the prospect of an interest rate cut by the Bank of England when its monetary policy committee (MPC) meets next to decide on rates on 19 March.

Inflation is predicted to reach the government’s 2% target by the end of the year, according to the OBR report. But again, this is potentially less certain in the light of the situation in the Middle East.

Source
¹March 2026 Economic and fiscal outlook – GOV.UK

SJP Approved 03/03/2026