The UK growth prospects is under threat from rising government debt and global trade tensions, according to the OECD. The influential policy group downgraded its UK growth forecast for 2025 to 1.3%, down from 1.4%. It also warned that trade disputes and high interest payments could further slow the economy.
The OECD cited the UK’s “very thin” fiscal buffer as a major concern. It urged Chancellor Rachel Reeves to increase taxes and cut spending to stabilize public finances. Reeves responded by promising to “go further and faster” to support households. Next week, she will outline her Spending Review, which faces tough decisions on funding for defense, healthcare, and welfare.
Despite stronger-than-expected growth of 0.7% in early 2025, the OECD warned that UK growth prospects are fading. Business confidence is weakening, and the economy is expected to expand by just 1% in 2026. The group stressed that meeting fiscal rules will be challenging without policy adjustments.
To strengthen finances, the OECD recommended closing tax loopholes and updating outdated council tax bands. Currently, England’s council tax relies on 1991 property values, while Wales uses 2003 prices. Without reforms, debt pressures could further drag down UK growth prospects.
Globally, trade conflicts are also taking a toll. The OECD cut its worldwide growth forecast to 2.9%, blaming rising tariffs and economic uncertainty. Bank of England Governor Andrew Bailey noted that trade agreements have been “blown up” by recent tensions.
The US economy, a key UK trading partner, is also slowing. The OECD reduced its 2025 US growth forecast from 2.2% to 1.6%. Despite President Trump’s claims that tariffs are boosting the economy, recent data shows a 0.2% contraction—the first since 2022.
As the UK navigates these challenges, the OECD’s warnings highlight the fragile state of UK growth prospects. With high debt, trade barriers, and global instability, the road to recovery remains uncertain.
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