UK GDP growth seen at 0.3% in 2027 in Treasury model

Internal UK Treasury scenario modelling indicates that a sustained disruption in the Strait of Hormuz could significantly weaken Britain’s medium-term outlook, with UK GDP growth shown at 0.3% in 2027. Officials’ work treats the result as conditional and ties it to prolonged supply-chain constraints linked to conflict risks, with the disruption assumed to last through the end of 2026.

The scenario is framed as a pathway rather than a forecast. Officials said outcomes depend on how long and how severe any disruption becomes, with duration highlighted as the central uncertainty in how shocks transmit into growth and prices.

Hormuz disruption scenario and the 2027 downgrade Internal Hormuz disruption scenario and the 2027 downgrade Internal UK Treasury The 0.3% growth figure for 2027 would represent a sharp deterioration from the Office for Budget Responsibility’s earlier estimate of 1.6% for that year. In the Treasury’s scenario framing, the Strait of Hormuz is treated as a key vulnerability because of its role in energy flows and the broader implications for availability and pricing. Officials describe knock-on effects running through higher input costs and uncertainty around supply, alongside the way firms plan investment and day-to-day operations. In the model, extended constraints weigh on the pace of activity and on business confidence that supports sustained growth. The scenario sets out how a prolonged disruption can affect multiple channels at once. Officials describe constraints as impacting both operational decisions, such as production planning and procurement, and higher-level decisions on whether to commit capital when supply conditions are unstable.

Inflation projected to peak at 4.3% in early 2027 Consumer Price Index inflation is projected to peak The same internal modelling anticipates a renewed inflation surge driven by higher energy prices associated with regional instability. Consumer Price Index inflation is projected to peak at 4.3% in the first quarter of 2027 under the scenario assumptions. Officials emphasise the conditional nature of the exercise and describe it as an illustration of how prolonged impairment of supply routes can influence energy markets and, in turn, domestic prices. The material highlights that inflation can respond strongly to energy-market shifts when disruption persists for an extended period. Near-term signals: 2026 growth, recent data, and stockpiling Alongside the longer-horizon scenario, shorter-term forecasts cited in the material put 2026 GDP growth at 0.9%. That would fall below the 1.1% target set earlier this year. Recent performance is described as mixed. Officials cite resilience in the first half of 2026, including 0.4% growth in the second quarter, while more recent information points to a risk of stagnation in June. Internal UK Treasury The material also notes that manufacturing companies have increased stockpiling in anticipation of potential shortages. Officials describe stockpiling as a temporary buffer that can support production and measured activity in the near term, while also signalling concern about supply reliability in the quarters ahead.

Fiscal targets and the key unknown

In the Treasury’s scenario work, persistent geopolitical risks are framed as the central threat to macroeconomic stability and to meeting fiscal targets. Officials underline that the outlook is highly sensitive to whether conflict-related constraints persist through end-2026, as assumed in the model.

Duration is presented as the main uncertainty: the longer disruption conditions hold, the stronger the modelled pressure on growth and prices across the forecast horizon.