A new economic report delivers a sobering prediction. The UK inflation forecast is the highest among the world’s richest nations. This analysis comes from the Organization for Economic Co-operation and Development (OECD). Consequently, the findings intensify pressure on the government ahead of the November Budget.
The OECD specifically raised its UK inflation forecast for 2025 to 3.5%. This increase is up from a previous estimate of 3.1%. The group cited persistently high food costs as a major factor. Therefore, the UK inflation forecast remains a significant outlier. Even by 2026, UK inflation is predicted to be 2.7%, the second highest in the G7.
Meanwhile, growth prospects appear muted. The OECD expects UK economic growth to slow to 1% next year. It attributed this slowdown to a “tighter fiscal stance”. This phrase suggests either tax rises or spending cuts are imminent. Additionally, increased trade costs and general uncertainty will dampen activity.
Chancellor Rachel Reeves responded to the report. She highlighted that the UK was the fastest-growing G7 economy in early 2024. However, she acknowledged there is “more to do” for working people. Conversely, Shadow Chancellor Mel Stride seized on the data. He accused the government of creating a “high tax, high inflation, low growth doom loop”.
The report fuels existing speculation about the upcoming Budget. Analysts suggest Ms. Reeves needs to find £20bn-£30bn to meet her borrowing rules. Some think tanks have proposed tax reforms. For example, one suggestion is cutting National Insurance while raising income tax. However, Labour has promised not to raise key taxes on “working people”.
The UK’s current inflation rate is 3.8%, well above the Bank of England’s 2% target. Many businesses blame recent policy changes for their higher costs. These include increased employer National Insurance and a higher minimum wage. Companies often pass these costs to consumers, which then fuels inflation.
Globally, the OECD offered a more resilient picture. It upgraded world growth for 2025 to 3.2%. Strong US investment in artificial intelligence contributed to this. However, the report warned of significant risks. New US tariffs are creating trade barriers and could soften growth later this year.
Ultimately, the OECD’s central message is clear. The UK faces a unique inflation challenge compared to its peers. The UK inflation forecast highest in the G7 underscores a difficult economic reality. The government’s next moves will be crucial for the country’s financial stability.
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