LONDON, March 3 (Xinhua) -- Escalating tensions in the Middle East could have "very significant" impacts on the British economy, Britain's independent fiscal watchdog warned on Tuesday, identifying geopolitical instability as a major downside risk to the country's outlook.
The warning came as the Office for Budget Responsibility (OBR) released its latest economic and fiscal forecast alongside Chancellor Rachel Reeves' Spring Statement.
According to the OBR, Britain's real gross domestic product (GDP) is projected to grow by 1.1 percent in 2026, before averaging 1.6 percent annually between 2027 and 2030. The watchdog stressed that there are significant risks surrounding this central forecast.
The OBR noted that the escalation in the Middle East occur as the forecast is being finalized, meaning its central projections, including the 2026 growth estimate, do not fully incorporate the potential economic consequences of the latest developments.
Under the OBR's baseline scenario, consumer price inflation is expected to fall from 3.4 percent in 2025 to 2.3 percent in 2026, returning to the Bank of England's 2 percent target thereafter. However, the watchdog cautioned that geopolitical developments could materially alter this trajectory.
According to the OBR, public sector net borrowing will decline gradually to 1.6 percent of GDP by 2030-31, with public debt stabilizing at around 95 percent of GDP in the early 2030s under the central scenario. However, geopolitical risks, alongside global trade tensions and productivity uncertainty, could lead to outcomes materially above or below the baseline projection.
Presenting the Spring Statement, Reeves stressed the need to maintain economic stability in a more uncertain global environment, saying the government has built fiscal headroom to help withstand potential external shocks.
On Saturday morning, joint U.S.-Israeli airstrikes on Tehran and other Iranian cities killed Supreme Leader Ali Khamenei, along with some of the leader's family members, senior military commanders and civilians. Iran responded through several waves of missile and drone attacks targeting Israel and U.S. bases across the Middle East.
U.S. President Donald Trump said on Monday the military campaign against Iran has "capability to go far longer" than four to five weeks.
European stock markets tumbled on Tuesday as escalating geopolitical tensions in the Middle East rattled investors, while Brent crude, the international benchmark, surged about 9 percent to climb above 85 U.S. dollars per barrel, its highest level since July 2024. ■