The OECD has trimmed its UK GDP growth forecast for 2025 to 1.4%, a 0.3 percentage point reduction from earlier estimates, and now expects growth to slow further to 1.2% in 2026. This downgrade follows a disappointing economic performance, including a 0.1% contraction in January driven by weakness in manufacturing a trend that has persisted since May last year.
Chancellor Rachel Reeves faces mounting pressure as the Spring Statement on March 26 looms, with official forecasts expected to show a much weaker GDP outlook. The latest OECD figures come amid global trade pressures, notably from US President Donald Trump’s tariffs on imports from Canada, Mexico, and China, which are contributing to rising trade costs and increased uncertainty.
With higher borrowing costs and fragile growth, the UK’s fiscal headroom is shrinking, potentially forcing fresh public spending cuts as warned by the Office for Budget Responsibility. Despite the downgraded growth projections, the UK remains one of the stronger performers within the G7, second only to the US.
The OECD has also forecast that UK inflation will decelerate to 2.9% this year and 2.3% in 2026, potentially allowing the Bank of England to consider further rate cuts. However, with global inflationary pressures from escalating trade barriers, central banks worldwide are urged to remain “vigilant.”
Chancellor Reeves has acknowledged the tougher economic landscape, emphasizing that Britain must adapt to a changing global environment to ensure stability and protect working people.
