Middle East tensions and economic outlook could shape UK farming, says AHDB

Chancellor Rachel Reeves’ spring statement may have contained few policy surprises, but AHDB says the economic outlook — set against renewed conflict in the Middle East — could still shape the fortunes of UK agriculture.

Delivered on 3 March, the statement came as geopolitical tensions intensified and uncertainty grew in global energy markets. As widely expected, the chancellor introduced no major new policy measures, with much of the focus instead falling on the latest economic forecast from the Office for Budget Responsibility (OBR).

Analysis by levy organisation AHDB suggests the updated projections point to a more cautious economic outlook that farmers and the wider food sector will be monitoring closely.

The OBR now expects UK GDP to grow by 1.1% in 2026, revised down from earlier projections. Growth is forecast to rise modestly to 1.4% in 2027 and 1.5% in 2028, while GDP per capita is predicted to increase by 5.6% over the course of the current parliament.

However, the watchdog estimates the chancellor has only limited fiscal headroom against the government’s fiscal rules set at the start of the parliament.

In practice, this leaves little room for significant new spending commitments or tax cuts unless economic growth performs better than expected.

There are some more positive signals in the outlook for inflation. The OBR expects inflation to fall back to the Bank of England’s 2% target during 2026, which under normal circumstances could allow interest rates to begin easing.

But that projection relies heavily on global energy markets remaining relatively stable.

The escalation of conflict in the Middle East has already raised concerns about disruption to the Strait of Hormuz, a strategic shipping route through which roughly 20% of global oil shipments pass.

AHDB notes that any prolonged disruption could push oil and gas prices higher, feeding into UK inflation and potentially delaying interest-rate cuts.

An AHDB spokesperson said the wider economic environment will remain a key factor for farm businesses.

“While the spring statement itself contained few new policy measures, the broader economic outlook will influence farm investment, input costs and business confidence across the sector.”

For businesses already operating on tight margins, including farmers and food processors, delayed interest-rate cuts could mean borrowing costs remaining elevated for longer.

For agriculture — a sector heavily dependent on long-term capital investment — that could continue to place pressure on working capital finance, investment loans and day-to-day cash flow.

Higher borrowing costs combined with volatile energy markets could slow investment in areas such as machinery upgrades, livestock housing, cold storage facilities, slurry storage and decarbonisation measures.

A slowdown in these investments could ultimately affect productivity and long-term resilience across farm businesses.

The wider economic backdrop was already fragile before the latest geopolitical developments, with the OBR highlighting only modest productivity gains and subdued business investment across the economy.

Periods of uncertainty — whether driven by fiscal policy, interest rates or geopolitical instability — tend to weaken business confidence, which is often the key driver of investment decisions.

AHDB says several factors will now be closely monitored by the agricultural sector, including energy prices, input costs and borrowing rates.

Energy remains a major concern. Farms and food processors could face renewed upward pressure on heating, electricity and fuel bills as oil and gas prices have already risen significantly.

Input costs are also closely tied to energy markets. Gas prices influence fertiliser production and energy bills, while oil prices affect diesel, plastics such as bale wrap, agrochemicals and transport costs.

At the same time, expectations that interest-rate cuts may be delayed could keep financing costs high, tightening margins for farm businesses.

AHDB also points to wider fiscal constraints. With limited headroom in the public finances, the government may have less capacity to introduce further economic support or investment.

These developments come at a time when many households had only recently begun to see some easing in the cost-of-living squeeze.

Any renewed economic uncertainty could also affect consumer spending, potentially weakening demand across domestic food markets and adding further pressure on farm businesses.