The UK is facing the biggest hit to growth from the Iran war out of the G20 major economies, according to an influential global policy group.

Economic growth in the UK this year is forecast to be 0.7%, the Organisation of Economic Co-operation and Development (OECD) said, down from its previous forecast of 1.2%. Inflation is also predicted to be higher than expected.

The OECD has downgraded forecasts for many of the world's biggest economies due to the US-Israel war with Iran.

A prolonged conflict could trigger "significant energy shortages" globally, it warned, while if the sharp rise in fertiliser prices is sustained crop yields will be impacted and food prices will soar next year.

Wholesale oil and gas prices have soared since the war started, due to disrupted supply from the effective closure of the Strait of Hormuz, one of the world's busiest oil shipping channels, and damage to oil and gas plants in the Middle East.

Experts fear a prolonged period of high energy prices will dampen growth, fuel inflation, and make interest rate cuts less likely.

The effects are already being felt at the pump, with UK drivers seeing higher petrol and diesel prices, and by heating oil users. Mortgage lenders have responded by raising rates and axing hundreds of deals.

The OECD's global growth forecast for this year is unchanged at 2.9%, but it predicts inflation across the G20 countries will be 4%, sharply up from its previous forecast of 2.8%.

UK inflation is now forecast to hit 4% this year, up from the previous estimate of 2.5%. The OECD then forecasts inflation will drop to 2.6% in 2027 - still up from its previous projection of 2.1%.

Among G7 countries, only the US is predicted to have higher inflation than the UK in the forecast, while only Italy is expected to see weaker growth.

In early March the UK government's official forecaster, the Office for Budget Responsibility (OBR), cut its expected growth rate for the UK this year to 1.1% from the 1.4% it predicted in last year's Budget.

But this forecast was made before the Iran war, which the OBR said could have a "very significant" impact on economies.

Chancellor Rachel Reeves said the Iran war would affect the UK, but "in an uncertain world we have the right economic plan".

"The decisions we have taken have put us in a better position to protect the country's finances and family finances from global instability," she said.

But shadow chancellor Sir Mel Stride called the downgrade a "damning verdict on how vulnerable our economy is thanks to Labour".

"Rachel Reeves can blame the world all she wants, but it's her choices that have weakened our economy at the worst possible moment," he added.

The Liberal Democrats called the forecast a "wake-up call that the government's anti-growth agenda" was costing families.

The OECD's outlook aims to give a guide to what is most likely to happen in the future, but forecasts can be incorrect and do change given the many factors that affect economic growth.

The organisation said its predictions depend on the assumption that the current energy market disruption eases, with oil, gas and fertiliser prices falling from summer onwards.

It said measures from governments to cushion households from the impact of higher energy prices "should be timely, well-targeted on households most in need and viable firms, preserve incentives to lower energy use and have clear expiry mechanisms".

Earlier this week Reeves said the government planned to help "those who need it most" if energy bills spiral.

She said any package would be constrained by the government's borrowing rules and its wish to keep inflation and interest rates "as low as possible".

The OECD said policies that improve domestic energy use and lower reliance on imported fossil fuels over the medium term should be a priority.

The forecast came as UK clothing retailer Next warned it was likely to have to raise prices for customers if the Iran war persists.

The retailer says it is likely to experience Β£15m in additional costs - such as fuel and air freight - if the conflict lasts for three months.

These have been offset by savings elsewhere, but if the war continues for longer than three months "we will begin to pass costs through as higher pricing – but for today that remains a contingency not a plan".

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