Overview
- The Office for Budget Responsibility said on Tuesday it had underestimated the 2022 energy shock and has updated its models to assume stronger second‑round pass‑through from energy prices into wages, benefits and core inflation.
- Those modelling changes will be applied to Chancellor Rachel Reeves’ upcoming Budget and are expected to shrink the government’s fiscal buffer, reducing the headroom for new spending or tax cuts.
- The OECD published revised forecasts that cut global growth and raised UK risks, forecasting UK GDP growth of about 0.9% in 2026, inflation near 3.7% and unemployment around 5.5% if the disruption is time‑limited.
- Energy markets remain tight with inventories near critical lows and oil up sharply since March, a pattern that the Bank of England’s worst‑case work shows could push inflation above 6% and force policy reversals if disruption persists.
- Policy options look constrained because targeted short‑term support has limited effect on headline inflation; that trade‑off raises the risk of higher borrowing costs, larger debt interest bills, and pressure on living standards if the conflict drags on.