OECD Downgrades UK Growth Forecast, Citing Debt and Trade Barriers

The UK’s economic growth is set to slow more than expected, according to the Organisation for Economic Co-operation and Development (OECD), which has downgraded its forecast for 2025 to 1.3%, down from 1.4% earlier this year.

The global think tank pointed to high government debt interest payments and new trade barriers - particularly from the US - as key reasons for the cut. It also warned that the UK’s public finances leave little room for surprises, urging Chancellor Rachel Reeves to consider a mix of targeted spending cuts and tax reforms to shore up the economy.

While the OECD acknowledged that growth in early 2025 had been better than expected, it said business confidence is now weakening and predicted further slowing to 1% growth in 2026. The state of the UK’s finances, it said, poses a real risk if fiscal rules are to be met.

Different to the IMF

To place their comments in context, the OECD’s growth forecast is still higher than the 1.2% estimated by the International Monetary Fund (IMF) reported on last week. For the IMF, this was an uplift on their previous forecast.

What’s next?

The timing of the OECD’s warning comes just ahead of Reeves’ upcoming Spending Review, where she’ll be tasked with deciding how to allocate funds between government departments.

It’s not just the UK

Due to trade tensions having a global effect, the OECD also downgraded growth forecasts for most major economies. It noted that the global economy is slowing and warned that “weakened economic prospects will be felt around the world, with almost no exception.”

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See: https://www.bbc.co.uk/news/articles/cq69j753egeo