The Organisation for Economic Co-operation and Development has sharply downgraded the outlook for the United Kingdom, warning it will be the hardest hit among the Group of Seven nations by the conflict in the Middle East. Growth is expected to slow significantly while inflation rises, leaving the country facing the prospect of stagflation rather than the strong expansion promised by the Labour government.

Critics argue that the economy was already stagnating before the latest global shock, with output flatlining for months and unemployment climbing from 4.2 per cent to 5.2 per cent since Labour took office. Youth unemployment has risen to its highest level in more than a decade, while businesses are said to be cutting hiring and turning to automation amid higher taxes, rising labour costs and increased regulation.

Inflation, which had returned to the 2 per cent target when Labour came to power, has climbed back to 3 per cent, the highest in the Group of Seven, even before the full impact of rising energy prices is felt. The United Kingdom is also facing higher borrowing costs than its peers, with government bond yields exceeding 5 per cent, making it more expensive for the state to finance its debt.

Opponents blame recent tax increases, higher business costs and expansive public spending for weakening the economy and leaving it vulnerable to external shocks. They argue that instead of strengthening the country’s finances, current policies have increased inflationary pressures, dampened investment and eroded confidence among global investors.