Inflation has also pushed up the cost of interest on government debt, which alongside an unexpected surge in government borrowing in August has added to the pressure on Healey.
Prime Minister Andy Burnham has made easing the cost of living for households one of his key aims, while the government is under pressure to spend more on defence.
However, Burnham and Healey face a difficult balancing act, trying to offer more support to households while sticking to Labour’s manifesto commitments on tax and the government’s self-imposed fiscal rules.
The impact of higher fuel prices next year depends on how long supply disruptions last, the OECD said. Stockpiles of oil and supplies from outside the Gulf states have helped cushion the effects on economies so far, it said.
Risks to the global economy include the war in the Middle East and climate-change related supply shocks, the OECD said.
Next year, global growth is expected to also be 0.1% lower, with countries affected including Australia, Canada, and the Euro-area.
Conflict in the Middle East has contributed to higher oil and gas prices globally, pushing up inflation in countries including the UK.
Weather-related shocks, including from a strong El Nino, could hit farmers and help push up food prices, it added.
In addition, tariffs and export restrictions on trade continue to add to uncertainty, it said. New US tariffs from July as part of the Trump administration’s ongoing volatile trade policy have raised its effective tariff rate by 1%.
Chief Secretary to the Treasury Emma Reynolds said: “Despite unprecedented pressures and conflict in both the Middle East and in Europe, the UK economy is showing strong resilience.”
She added that the government is “already giving families space to breathe” and “starting the big, long-term changes needed to create good jobs and growth in every postcode”.
However, Conservative shadow chancellor Andrew Griffith said the OECD urges countries to “control spending and improve public sector efficiency”.
“Instead, this government is trying to find new ways to tax you whilst having to pay interest rates on their borrowing which are the highest in the G7,” he said.