The Organization for Economic Cooperation and Development (OECD) has sharply revised its economic outlook for major economies in response to the ongoing Iran war, highlighting significant impacts on inflation and growth, particularly for the UK and US [1][2]. The OECD's interim report, released Thursday, predicts UK inflation will reach 4% in 2026, up 1.5 percentage points from its previous forecast, while UK growth is expected to stagnate at 0.5%, down 0.5 percentage points from the last review. These are the steepest revisions among developed nations, with the UK singled out as the most vulnerable due to its heavy reliance on imported oil and gas and limited storage capacity [1]. The OECD also forecasts US inflation at 4.2% for 2026, a substantial increase from its prior estimate of 2.8% and notably higher than the Federal Reserve's own projection of 2.7%. US GDP is expected to accelerate at a 2% pace this year before easing to 1.7% in 2027, following a sharp slowdown to 0.7% in Q4 2025 [2]. The OECD cautions that central banks, including the Fed and Bank of England, may need to adjust policy if inflationary pressures persist, with the Bank of England now unlikely to cut interest rates as previously anticipated and some economists suggesting hikes could be possible if the conflict continues [1][2]. The Iran war has caused a surge in global energy prices, with Iran blocking most energy shipments through the Strait of Hormuz and damaging regional infrastructure, disrupting supplies of oil, gas, and other commodities such as fertilizers [1]. This disruption has led to higher gasoline prices in the US, with the nationwide average reaching $3.98 per gallon on Thursday, up roughly 33% from a month ago, according to AAA [3]. Analysts warn that these elevated costs could offset the larger tax refunds Americans are receiving this season due to President Donald Trump's 'big beautiful bill,' which increased the average refund to $3,623, about $350 more than last year [3]. If the Strait of Hormuz remains closed and crude oil prices jump to $110 per barrel, retail gasoline prices could peak at $4.36 per gallon in May, potentially wiping out most or all of the larger tax refunds for average households, according to economists at the Stanford Institute for Economic Policy Research and Goldman Sachs [3]. The OECD notes that the global economic outlook is surrounded by high uncertainty, with growth supported by technology investment and lower tariffs, but weighed down by energy price shocks and supply disruptions [1][2].
CONCLUSION
The OECD's latest outlook underscores the severe economic consequences of the Iran war, with the UK and US facing the highest inflation and energy price shocks among developed economies. Elevated gasoline prices threaten to erode consumer gains from larger tax refunds in the US, while central banks may need to reconsider policy actions if inflation persists. The situation remains highly uncertain, with market sentiment negative and the impact on global economies significant.