British Finance Minister Rachel Reeves announced a downgrade to the UK's economic growth forecast, with the Office for Budget Responsibility cutting its 2026 projection to 1.1% from 1.4% just three months ago. The OBR also raised its inflation forecast, expecting it to peak at 5.3% in 2026, up from 4.75% in 2025.

Unemployment forecasts have worsened, with the OBR now predicting a 4.9% rate in 2027, up from 4.6%. The government attributes labor market weakness to new entrants struggling to find work amid subdued hiring demand. These projections come before factoring in recent Middle East conflicts that could further impact the UK economy.

The downgraded forecasts present challenges for Reeves and the Labour government, which is already struggling in polls following a recent by-election defeat. With energy prices surging due to US-Israeli conflict with Iran, analysts warn that inflation and interest rates could exceed current projections, potentially forcing the Chancellor to revise borrowing plans and reduce fiscal headroom in the upcoming budget.