The Organisation for Economic Co-operation and Development (OECD) has cut back the UK’s economic growth forecasts due to stubborn inflation and an escalating trade war.
The OECD’s new interim report scaled back UK growth to 1.4 per cent in 2025 and 1.2 per cent in 2026 – down from previous projections of 1.7 and 1.3 per cent.
Similar cuts have been made to global growth predictions, with the OECD projecting that growth will dip from 3.2 per cent last year to 3.1 per cent in 2025 and just 3 per cent in 2026.
The report warned that Trump’s trade war has hit global economic growth, with the US President’s particularly punitive tariffs on Canada and Mexico likely to cause the most pain.
The OECD said: “Further fragmentation of the global economy is a key concern.
“Higher and broader increases in trade barriers would hit growth around the world and add to inflation.”
The OECD has also downgraded its projections for growth, down to 2.5 per cent in 2025 and just 1.6 per cent in 2026 – down from earlier predictions of 2.4 and 2.1 per cent.
Rachel Reeves said: “This report shows the world is changing, and increased global headwinds such as trade uncertainty are being felt across the board”.
The Chancellor’s response marks a tone change from when Labour first came to power in the summer, when the government broadly blamed the previous Conservative administration for poor economic conditions.
Now, the Treasury appears to put these bleaker projections down to geopolitical uncertainty.
Reeves added: “A changing world means Britain must change too, and we are delivering a new era of stability, security and renewal, to protect working people and keep our country safe.
“This means we can better respond to global uncertainty, with the UK forecast to be Europe’s fastest growing G7 economy over the coming years – second only to the US.”