THE UK is “teetering on a razor-thin margin between stagnation and a recession” as projections for growth this year were cut over the Iran war.
Economists have cut projections for GDP growth and significantly upgraded their inflation forecast as the war in the Middle East rages on.
It is now threatening to put the UK economy on the edge of a recession this year after new forecasts showed that the rise in energy prices will push inflation up to the second-highest level in the G7, a report by the Organisation for Economic Co-operation and Development (OECD) said.
GDP is now expected to rise by just 0.7% this year, down by 0.5% from previous predictions of 1.2%, the OECD added.
This would be the largest downgrade in growth projections for any rich economy and put the UK second last in the G7 growth table.
Growth is expected to go up to 1.3% in 2027, unchanged from the OECD’s previous estimate.
It shows the tightrope the government are walking
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said he is not surprised by the figures.
He added: “This is not surprising and it shows the tightrope the government is walking. Their policies around higher tax and higher spending have caused higher youth unemployment and stunted growth which leaves the country more vulnerable to external factors.
“If everything in the world was going ok, it might work but with Donald Trump trying to rewrite the world order, that isn’t a good place to be. It seems optimistic to assume future growth isn’t going to be affected.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said the UK is “teetering on a razor-thin margin between stagnation and a recession”.
He added: “Even before the Iran war, the UK had already shot itself in the foot by driving its tax burden to the highest level since the Second World War, discouraging enterprise, and pushing entrepreneurs out of the economy under ever-growing regulatory pressure.
“Today’s OECD report merely confirms that we are now being shot in the head: importing a crisis we have no power to manage, let alone resolve. The UK now teeters on a razor-thin margin between stagnation and a technical recession, suffering the sharpest growth downgrade of any G7 nation alongside an inflation spike to 4%.
“The Bank of England finds itself in a policy trap, unable to cut rates to stimulate the economy while inflation remains the second highest in the G7.”
This is seriously worrying
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said the risk of a recession is real.
She added: “This is seriously worrying, because it shows how exposed the UK still is when global energy markets get hit. The OECD has cut UK growth for 2026 to 0.7%, down from 1.2%, and lifted its inflation forecast to 4%, which would leave Britain with the second-highest inflation in the G7 and one of the biggest growth downgrades among major economies.
“Do I think recession is guaranteed? No. But I do think the risk is real, because this is exactly the kind of backdrop that squeezes households, businesses and confidence all at once. Higher oil and gas prices do not just hit petrol stations and heating bills.
“They feed into transport, food, borrowing costs and business margins, and that is where the economic drag gets broader and uglier. What worries me most is that the UK feels especially fragile here. Growth was already weak, inflation was already not fully dead, and now this war has poured energy shock back into the system. So this is not a ‘woe is me’ headline for drama.”
Martin Rayner, Director at Compton Financial Services, said “the real concern is what this means for tax”.
He added: “Predictions are just that, but they’re grounded in real data – and the direction here is clearly worrying. This isn’t a recession forecast. Growth is still positive, so technically the UK avoids that label. But 0.7% growth is barely moving, and when paired with rising inflation from higher energy costs, it creates a tough backdrop.
“The real concern is what this means for tax. Weak growth means weaker tax receipts, just as government spending pressures remain high. With limited room to cut spending – especially politically – the risk shifts towards further tax rises.
“We’ve already seen some of the biggest tax increases in recent years, and these forecasts suggest that may not be the end of it. For households and businesses, the squeeze could come not just from inflation, but from what the Treasury does next.”
Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said “Britain is in a very disadvantaged position”.
She added: “The risk isn’t just a technical recession. It’s that economic pressure forces the short-term choices like cost-cutting, faster automation and less investment in people. This makes the transition to greater productivity through AI and digital transformation more painful and more unfair than it needed to be.
“The households who feel this first aren’t the ones with the runway to wait for the productivity dividend. They’re managing energy bills that respond immediately to Gulf conflict, in jobs where the AI transition is happening to them rather than with them.
“Job security anxiety and rising living costs don’t create the psychological safety needed to learn new tools or adapt to new workflows and that matters because the human side of AI adoption is already the hardest part in good conditions. Into that, add hyper-scalers and tech companies whose entire commercial model depends on accelerating adoption regardless of readiness and Britain is in a very disadvantaged position.”
Photo by Illia Plakhuta on Unsplash.
