The United Kingdom is expected to experience the highest inflation of all G7 nations in 2025, according to the Organisation for Economic Co-operation and Development (OECD).
The Paris-based body forecasts that UK inflation will average 3.5% this year, fuelled by rising food prices and higher employer national insurance contributions, which the government increased by £25 billion annually. This is significantly above the projected rate for the United States, at 2.7%, despite Donald Trump introducing the largest tariffs since the 1930s.
The OECD expects UK inflation to slow to 2.7% in 2026, still above the Bank of England’s 2% target. The Bank has attributed persistent inflation to regulated costs such as energy and water bills, alongside the NICs rise.
While inflation is predicted to remain stubbornly high, the OECD also warned that Britain’s tight fiscal stance – combining higher taxes with reduced government spending – will dampen economic growth. UK GDP is expected to grow by 1.4% this year, slightly higher than its previous forecast of 1.3%, but growth is predicted to slow to just 1% in 2026.
That would place Britain’s growth rate behind the US (1.5%), Germany (1.1%) and Canada (1.2%), but ahead of France (0.9%), Italy (0.6%) and Japan (0.5%). For 2025, the UK is on track to be the second fastest-growing economy in the G7, behind only the United States.
Chancellor Rachel Reeves responded positively to the forecasts, saying: “These figures confirm that the British economy is stronger than forecast – it has been the fastest growing of any G7 economy in the first half of the year. But I know there is more to do to build an economy that works for working people – and rewards working people.”
Conservative leader Kemi Badenoch took a different view, calling the OECD findings “a damning verdict on Starmer’s weak economic management. Growth is shrinking, inflation highest in the G7 – all driven by Labour’s tax hikes. Britain needs strong leadership and a clear plan.”
The OECD’s interim outlook also highlighted the global impact of Trump’s sweeping tariff policies. It noted that while the effects on US inflation have been delayed, they are expected to weigh on international trade and growth in the coming months. Global GDP is projected to rise 3.2% this year before slowing to 2.9% in 2026.
The report further warned of risks to the world economy, including potential tariff hikes, renewed inflationary pressures, fiscal strains, financial market instability, and the volatility of crypto-asset valuations, which remain closely tied to the global financial system.
