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Getty Images<\/p>\nNick EdserBusiness reporter<\/p>\n
Getty Images<\/p>\n
Tax rises and constraints on government spending will weigh on growth in the UK’s economy, according to an influential global policy group.<\/p>\n
UK inflation will also remain among the highest of the G7 advanced economies, although it is expected to ease, the Organization for Economic Co-operation and Development (OECD) said.<\/p>\n
The OECD forecast the UK economy would be “steady” with growth of 1.4% this year before slowing to 1.2% in 2026, although its prediction for next year is an improvement on its previous estimate.<\/p>\n
The forecast comes less than a week after the Budget, which announced tax increases of \u00a326bn over the next five years, including a freeze on income tax thresholds.<\/p>\n
The UK will be the second-fastest growing economy in the G7 this year, behind the US, the OECD predicts, and the third fastest in 2026 when it is overtaken by Canada.<\/p>\n
While UK growth is expected to slow next year, the rate is forecast to edge up to 1.3% in 2027.<\/p>\n
However, the OECD’s forecasts<\/a> are more pessimistic than those of the UK government’s official forecaster, the Office for Budget Responsibility, which expects 1.5% growth this year<\/a>, 1.4% next year and 1.5% in 2027.<\/p>\n “Fiscal consolidation will be a headwind to the economy, with past tax and spending adjustments weighing on household disposable income and slowing consumption,” the OECD said.<\/p>\n “Sluggish” productivity and “weak” growth in the working-age population, which was partly due to slowing inward migration, would “continue to act as a drag on the economy”, it added.<\/p>\n However, it expects the economy to get a slight boost in late 2026 from lower interest rates and a “gradual” improvement in global trade. The OECD expects two more interest rate cuts from the Bank of England, taking the key rate to 3.5%.<\/p>\n UK inflation is expected to be 3.5% this year – unchanged from the OECD’s previous forecast, but the highest in the G7. The inflation rate is then predicted to drop to 2.5% next year, down from its previous estimate of 2.7%.<\/p>\n Unemployment is set to rise to 4.9% in 2026, the OECD says, and to 5% in 2027.<\/p>\n Reacting to the OECD’s report, Chancellor Rachel Reeves said: “Last week, my Budget cut waiting lists, cut borrowing and debt, and cut the cost of living. Less than a week later, the OECD has upgraded our growth and cut its forecast for inflation next year.<\/p>\n “The choices that I made at the Budget are expected to cut inflation by 0.4 percentage points, helping cut the cost of living for households and costs for our businesses.”<\/p>\n Shadow chancellor Mel Stride said: “Rachel Reeves promised growth but growth is expected to weaken next year, because of her choices. This is the cost of policies that punish work, businesses and investment.”<\/p>\n