RURAL UK — The Organisation for Economic Co-operation and Development warned that rural areas in the UK would be particularly at risk of diesel shortages if the conflict in Iran continues to squeeze supplies. The OECD suggested that localised shortages of diesel could weigh on activity, especially in rural areas.
The OECD also warned of broader economic risks stemming from the conflict, including higher fertiliser costs that could lead to increased food prices. Despite these challenges, the organisation revised its UK economic growth forecast upward to 0.9% for 2024, a modest improvement from its March projection of 0.7%. However, it downgraded its 2025 growth outlook to 1.1%, below the previous estimate of 1.3%.
Chancellor Rachel Reeves has intervened to support rural consumers reliant on domestic heating oil, which has increased in price since the outbreak of the conflict. Reeves said: “The conflict in the Middle East poses a significant challenge to the world economy. Despite this, the OECD now expects UK inflation to be lower and growth higher than previously thought. We have the right economic plan, and changing course would put that progress at risk, with families and businesses paying the price.”
The OECD expects UK inflation to average 3.7% in 2026, peaking in the third quarter before falling to 2.4% in 2027. The organisation does not expect Bank of England policymakers to raise interest rates to tackle rising prices, citing a slowdown in the jobs market that limits workers’ capacity to bid up wages. It predicts a quarter-point cut in interest rates to 3.5%. Bank of England Governor Andrew Bailey said: “Given the context of softness in the real economy and uncertainty around the scale and duration of the shock, tolerating temporarily above-target inflation to provide some support for the real economy is an appropriate way to approach the trade-off.”