Key facts
- UK GDP growth could fall to 0.3% in 2027 if Strait of Hormuz disruption continues until end of 2026.
- Treasury modelling projects inflation could peak at 4.3% in early 2027.
- The Middle East conflict has raised oil and fuel prices and disrupted supply chains.
- UK economic growth slowed to 0.4% in the second quarter.
- Chancellor John Healey is prioritizing cost-of-living support in the upcoming Budget.
Treasury modelling suggests UK GDP growth could fall to as low as 0.3% in 2027 if disruption in the Strait of Hormuz continues until the end of 2026. This scenario assumes the Strait remains closed for five months and no permanent US-Iran peace deal is reached until the new year. Under this modelling, inflation is projected to peak at 4.3% in the first three months of 2027, a significant increase from the current rate of 2.6%.
Official figures showed UK economic growth slowed to 0.4% in the second quarter, down from 0.6% in the first quarter, in line with economists' expectations. The UK economy had been more resilient than some analysts feared, but continued high energy prices are beginning to weigh on growth.
The government faces pressure to address the financial burden on households and businesses in the upcoming Budget on October 28. Chancellor Healey has stated that addressing the cost of living will be his main focus. Prime Minister Burnham has already announced policies such as removing VAT from domestic electricity bills and accelerating the end of "subscription traps," but has indicated further support may be necessary. The government has pledged not to raise income tax, VAT, or National Insurance contributions.