OBR Warns Rising Energy Prices Are Biggest Near-Term Risk to UK Economy as Budget 2026 Forecasts Cut Growth to 1% in 2027 and Push Inflation to 3.8%

The Office for Budget Responsibility (OBR), the UK's independent fiscal watchdog, published its first economic assessment since the onset of the Middle East conflict on 28 October 2026, warning that soaring energy prices represent the biggest near-term risk to the UK economy. The OBR sharply revised its 2027 growth forecast down from 1.6% to 1%, while raising its inflation peak to 3.8% in 2027, before a gradual return toward the Bank of England's 2% target towards the end of the decade. The OBR also revised its interest rate projection upward, forecasting that rates could reach as high as 4.5% in the coming years, compared with the current level of 3.75%. The Bank of England is widely expected to raise rates at its next meeting. Petrol was priced at almost £1.73 per litre and diesel near £1.99 at the time of the assessment, with elevated energy costs feeding into goods and food prices across supply chains. Real household disposable income, a measure of living standards, is forecast to dip in the near term before recovering from 2027, though by less than previously forecast. Chancellor Healey described the global economic situation as "real challenges ahead" while announcing cost-of-living measures including a £100 one-off energy payment and plans to end gas standing charges for households. The OBR acknowledged "significant uncertainty" in its projections given the evolving Middle East situation.