Higher taxes and planned spending cuts are set to weigh heavily on UK growth next year, adding to pressures from US President Donald Trump’s tariff increases and one of the highest inflation rates across the G7, according to a new report.
The Organisation for Economic Co-operation and Development (OECD) warned that Britain’s “tighter fiscal stance” – with rising taxes and reduced government spending – will drag on the economy, with growth expected to slow sharply from 1.4% in 2025 to just 1% in 2026.
The influential body also forecast a sharp rise in inflation, predicting the UK will record the highest rate among G7 nations this year. Inflation is now set to hit 3.5% in 2025, up 0.4 percentage points from its earlier forecast, and will still remain well above the Bank of England’s 2% target in 2026 at 2.7%, driven largely by soaring food costs.
This would leave Britain with the second-highest inflation rate in the G7 next year, behind only the US, the OECD said.
While the organisation revised its 2025 UK GDP forecast slightly higher, to 1.4% from the 1.3% estimated in June, it kept its outlook for 2026 unchanged – signalling a sharp slowdown in growth ahead.
