The Organization for Economic Co-operation and Development (OECD) reports that tax increases and spending cuts in the UK will potentially hinder economic growth. UK inflation is projected to remain high among G7 nations but is expected to decrease. According to the OECD, the UK economy is anticipated to grow by 1.4% this year, with a slight slowdown to 1.2% in 2026. This year’s growth forecast is an improvement compared to prior estimates.
The UK is expected to be the second-fastest growing G7 economy this year, following the US, and will rank third in 2026 behind Canada. Even with the predicted slowdown, growth is expected to reach 1.3% in 2027. These projections are more conservative than those from the Office for Budget Responsibility, which forecasts 1.5% growth this year.
The OECD notes that fiscal consolidation may negatively affect household disposable income and consumption. Factors such as low productivity and a stagnant working-age population, partly due to reduced immigration, are projected to continue impacting the economy. However, the OECD does foresee minor boosts from lower interest rates and gradual global trade improvements by late 2026, predicting two interest rate cuts that would lower the Bank of England’s key rate to 3.5%.
Inflation is expected to be 3.5% this year, the highest in G7 nations, with a decrease to 2.5% next year. Unemployment rates are projected to rise to 4.9% in 2026 and 5% in 2027. In light of the OECD’s report, Chancellor Rachel Reeves highlighted recent Budget measures aimed at reducing borrowing and aiding households.
On a global scale, the OECD predicts the world economy will grow by 3.2% this year, slowing to 2.9% in 2026, with a slight rebound expected in 2027. The outlook remains cautious, with warnings of potential challenges from increased trade barriers and risks related to high valuations in certain markets.
Source: https://www.bbc.com/news/articles/cr5zdeyd1eeo?at_medium=RSS&at_campaign=rss