The Organisation for Economic Co-operation and Development (OECD) expects UK economic growth to be slower than previously forecast. The Paris-based body has revised its UK growth forecast for 2025 from 1.4% to 1.3% and cut its 2026 estimate from 1.2% to just 1%.

The downgrade follows a broader fall in global growth expectations, primarily driven by trade tensions triggered by the US’s renewed use of import tariffs. The OECD said that higher-than-expected inflation and tight public finances have also weighed on the UK’s outlook.

Although the UK economy grew by 0.7% in the first quarter of 2025, the OECD noted a sharp loss of momentum. Business confidence is fading, retail sales have been volatile, and consumer sentiment has declined since mid-2024.

Almost all OECD member countries received downgraded forecasts. Global growth is now projected at a modest 2.9% in 2025 and 2026, compared to March’s estimates of 3.1% and 3% respectively. The US, Mexico and Canada will likely be hardest hit by tariff-related uncertainty.

The UK Chancellor, Rachel Reeves, faces added pressure ahead of her upcoming spending review. With tax revenues constrained by a stagnant economy and rising health, pensions and defence costs, there’s little budget headroom.

The OECD advised the UK to prioritise capital investment by limiting day-to-day spending. However, it warned that even small economic shocks could derail existing fiscal plans and prompt further cuts.

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