The OBR warns the Middle East war will curb growth and push inflation near 4%, leaving household disposable incomes barely above pre‑pandemic levels.

Britain’s independent fiscal watchdog, the Office for Budget Responsibility (OBR), said the outlook for living standards is "a pretty grim picture" as the conflict in the Middle East drags down growth and fuels a new cost‑of‑living squeeze. The assessment was released alongside Chancellor John Healey’s first budget, which included a £100 one‑off payment for 20 million households and a temporary tax hike on banks to fund energy support.

Growth outlook sharply cut

The OBR lifted this year’s GDP growth estimate to 1.2% from 1.1% after a stronger‑than‑expected performance driven by AI investment. However, it slashed the forecast for 2027 from 1.6% to just 1%, warning that the early resilience to the Middle East war is fading and that inflation could climb close to 4%.

Household income under pressure

According to OBR analyst David Miles, real disposable income per person is essentially flat compared with the pre‑COVID baseline, a rarity in UK history. Even with the £100 blanket payment and the removal of gas standing charges, the watchdog expects disposable incomes to dip in the short term before only modestly recovering by the end of the current parliament, remaining roughly 2% above pre‑pandemic levels by the early 2030s.

What traders are watching

• UK inflation data for this year – OBR projects 3.5% versus the 2% forecast in March
• Borrowing cost trends as the government’s debt‑interest bill rises by £14 bn amid higher global borrowing rates
• Fiscal rule headroom – the chancellor left £15 bn of buffer, down from £23.6 bn, which could affect future spending limits

Related news

• Fed holds rates steady, bitcoin barely moves as December hike looms
• Gold slips toward $4,000 as oil above $100 clouds Fed outlook
• Bitcoin and gold hold near key levels ahead of Fed decision
• Swiss franc under pressure as traders await Fed decision

More from ITF

• ITF trading signals for gold and forex
• Copy verified traders with ITF Copy Trading
• This week’s economic calendar

This article is compiled from international market news for information only. It is not investment advice.