Key facts
- OECD forecasts Bank of England will hold rates unchanged throughout 2024.
- OECD expects Bank of England rate cuts to begin in 2027.
- Weak UK jobs market and transitory energy shock cited as reasons for holding rates.
- OECD warns of severe global slowdown if Middle East conflict prolongs energy disruptions.
- Global growth could slide to 2.1% in 2026 under a protracted energy disruption scenario.
- OECD projects UK economic growth of 0.9% this year.
The Organisation for Economic Co-operation and Development (OECD) has warned that the global economic outlook is heavily dependent on the duration of the Middle East conflict. In a protracted disruption scenario, where energy supply issues persist into next year, global growth could significantly slow to 2.1% in 2026 and 1.8% in 2027, levels not seen outside major crises like 2008-2009 or the COVID-19 pandemic. This scenario could also lead to higher inflation, potentially adding 0.4 percentage points in 2026 and 1.3 percentage points in 2027, prompting central banks to consider short-term interest rate hikes. The OECD projects that the Bank of England will hold rates unchanged throughout 2024, with cuts anticipated in 2027, influenced by a weak UK jobs market and the expectation of a transitory energy shock. The UK economy is forecast to grow by 0.9% this year. In contrast, if the conflict is short-lived, global growth is projected to slow from 3.4% in 2025 to 2.8% in 2026 before recovering to 3.1% in 2027. The report also detailed uneven economic outlooks across major economies, with the US, Eurozone, UK, China, and Japan facing varying degrees of growth moderation and inflation pressures. The conflict has divided the global outlook into two tracks: a modest slowdown if the conflict ends soon, or a severe hit if it drags on. AI investment, while offsetting some pain, could leave the economy more fragile by tying it to chokepoints. The OECD sees U.S. growth near 2% this year, the strongest in the G7, due to AI-related investment and resilient household spending.