OBR: higher energy prices to slow UK growth and push inflation up to 3.8%

Higher energy prices will affect prices, living standards and economic growth in the UK, according to the latest forecasts from the Office for Budget Responsibility (OBR), the independent public finances watchdog. The forecasts were published alongside the Autumn Budget 2026. The topic was flagged by BBC News, but we checked the figures against government and House of Commons Library publications.

Inflation

According to the government's Budget document, inflation rose to 3.5% in September 2026. Most of the rise came from higher motor fuel prices, which the government links to the conflict in the Middle East. The OBR expects inflation to peak at 3.8% in the first quarter of 2027 and then fall. It is forecast to return to the 2% target in the third quarter of 2028.

The House of Commons Library says the OBR raised its inflation forecast for 2027 from 2.0% to 3.4%. The forecast assumes energy prices will decline over time. The OBR judges that second-round effects of dearer energy, meaning the impact on production and transport costs, will be only modest.

Economic growth

The OBR raised its GDP growth forecast for 2026 to 1.2%, which is 0.1 percentage points higher than in March. For 2027, however, it expects growth to slow to 1.0%. According to the House of Commons Library, that is down from 1.6% in the March forecast. The OBR points to the effects of higher energy prices on consumers and businesses, and to higher interest rates. Growth is forecast to average 1.7% a year between 2028 and 2031.

Living standards

Real household disposable income per person is forecast to fall by 0.6% in the 2026–27 tax year. In the following years the forecast assumes average growth of 0.6% a year. The House of Commons Library notes that the OBR also lowered its forecasts for improvements in living standards. Household incomes per person, adjusted for inflation, are expected to be only around 2% above their pre-pandemic level by early 2032.

The government says the Budget provides "breathing space" for households as cost-of-living pressures persist. According to the document, these measures are expected to reduce inflation in 2027 by 0.1 percentage points. The OBR concluded that the measures taken in the Budget had little effect on its GDP and inflation forecasts.

Uncertainty around the forecast

The forecast is sensitive to wholesale oil and gas prices. If energy prices followed a lower path than in the central scenario, GDP growth in 2027 could be 0.5 percentage points higher. Government borrowing would then be £12 billion lower in 2027–28.

What this means for you

The forecast covers the whole economy, so it may matter for household budgets of people living in the UK. Inflation staying higher for longer means slower growth in real incomes, especially for everyday costs such as energy and fuel. These are forecasts, however, and could change with oil and gas prices.