Budget watchdog's worst case scenario for oil 'has already been reached'
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The Budget watchdog's worst-case scenario for oil has already been reached with yet more price shocks to come.
In its predictions ahead of the Chancellor's statement this week, the Office for Budget Responsibility (OBR) forecast that oil prices would peak at $115 a barrel next year in a 'severe shock scenario'.
But the benchmark Brent crude oil price climbed past $115.90 on Wednesday.
And it is feared the cost of a barrel will peak again next week because Donald Trump has vowed to resume bombing Tehran after the US midterm elections on Tuesday.
The unexpected increase prompted the OBR to significantly downgrade the growth forecast for next year.
GDP is now projected to grow by just 1 per cent in 2027, 0.5 per cent lower than forecasts.
In its forecast, the OBR said: 'We anticipate growth of around 1 per cent in 2027, down about half a percentage point from March, as it takes time for higher global energy prices and increased interest rates to weigh on activity.'
Its March forecast was finalised just before Mr Trump's attack on Iran on February 28, which sent oil prices soaring above $115 per barrel.
Soaring oil prices have already exceeded the Office for Budget Responsibility's (OBR) worst-case forecast. Pictured is an oil storage depot along the River Thames
Renewed US military action against Iran could push oil prices higher. Pictured is the Strait of Hormuz
The OBR now expects inflation to peak at 3.75 per cent early next year and will be about 1.5 percentage points higher across 2027 than expected.
Surging prices mean households will experience no increase in their earnings in 2027 or 2028, the OBR added.
Former Tory defence secretary Sir Gavin Williamson said on Thursday: 'The OBR's worst-case has turned up a year early.
'Things are only going to get worse, and it seems as if the OBR are being ridiculously optimistic and the Government is still planning as if none of this is happening.'
Former home secretary Dame Priti Patel said the OBR will 'continue to downplay the extent of the economic shambles Labour are inflicting upon Britain.'
The OBR said: 'A broad range of factors, many from outside the UK, will influence the UK's future economic performance.'
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