The UK’s economic growth outlook has been downgraded by the Organisation for Economic Co-operation and Development (OECD), as global trade tensions—largely fuelled by Donald Trump’s renewed tariff war—continue to cast a shadow over business confidence, investment, and international markets.
The Paris-based economic body revised its UK GDP growth forecasts downward for both 2025 and 2026. Growth expectations have slipped from 1.4% to 1.3% for 2025, and from 1.2% to a modest 1% in 2026.
The OECD attributed this slowdown not only to global uncertainty driven by rising US tariffs but also to persistent UK inflation and constraints on government spending.
The UK joins a wide list of countries affected by the latest OECD downgrades, as the group now predicts global economic growth will slow to just 2.9% in both 2025 and 2026, down from an earlier estimate of 3.3% for 2024.
The United States, along with Mexico and Canada, are projected to bear the brunt of the tariff impact.
The OECD slashed its US growth forecast for 2025 from 2.2% to 1.6%, further falling to 1.5% in 2026, citing the ongoing strain of import duties on steel, aluminium, and consumer goods.
The OECD’s bleak assessment comes just as UK Chancellor Rachel Reeves prepares to unveil her much-anticipated three-year spending review.
With rising costs in health, pensions, and defence limiting fiscal flexibility, the UK Treasury faces mounting pressure to deliver stability amid flatlining tax revenues and weak economic momentum.
Reeves will base her economic strategy on projections by the Office for Budget Responsibility (OBR), which earlier this year forecast UK growth at 1% in 2025—before the US tariffs were announced—and a rebound to 1.9% in 2026.
However, OECD Chief Economist Álvaro Pereira warned that such forecasts may no longer be realistic.
“Trade barriers have risen sharply, eroding business and consumer confidence,” said Pereira.
“Unless tariffs are rolled back, global investment and trade will continue to stall, dragging down income and employment worldwide. The UK is particularly vulnerable to these headwinds.”
Inflation in the UK is expected to remain stubbornly high, further complicating efforts by the Bank of England to ease monetary policy.
While the OECD still expects inflation to fall to central bank targets by 2026, it cautioned that progress could be delayed in economies exposed to tariff pressures.
The report also highlighted weakening UK business sentiment and falling consumer confidence.
Following a relatively strong start to 2025—with GDP growth of 0.7% in Q1—the OECD now warns that the UK economy has lost momentum, with volatile retail sales and a lack of sustained recovery in demand.
The OECD echoed warnings from the International Monetary Fund (IMF) about the fragility of the UK’s fiscal position. It criticised the government’s “very thin fiscal buffer”, warning that even minor economic shocks could derail spending plans and risk breaching Reeves’s fiscal rules.
“Rebuilding fiscal resilience must become a top priority, particularly given the tight constraints on day-to-day spending,” the OECD advised.
In response, Chancellor Reeves defended the government’s position, citing recent trade agreements with the EU, US, and India as key levers to reduce business costs, create jobs, and stimulate foreign investment.
Nonetheless, the OECD’s findings underscore the challenges facing the UK economy in a volatile global landscape—characterised by escalating trade disputes, persistent inflation, and limited fiscal room for manoeuvre.
