UK Economy Faces Strain Amid Trade Barriers and Debt Pressures, OECD Warns
The UK economy is likely to grow more slowly in the coming years. Rising global trade tensions and high government debt payments are key reasons, says a new report from the Organization for Economic Co-operation and Development (OECD). The think tank has lowered its 2025 UK growth forecast from 1.4% to 1.3%. It expects growth to drop further to just 1% in 2026.
OECD Flags Public Debt and US Tariffs as Major Risks
According to the OECD, the UK’s weak outlook is not only due to global trade issues. The country also lacks room in its public finances to manage economic shocks. The OECD described the UK’s fiscal buffer as “very thin.” It advised Chancellor Rachel Reeves to find a balance between cutting spending and raising taxes to improve the economy.
Spending Review Forces Difficult Budget Choice
Rachel Reeves will present her Spending Review next week. She must make tough decisions about how to divide limited resources. The government has already pledged large amounts to defence. Healthcare spending is also likely to rise as Labour pushes to reduce NHS waiting times.
In March, Reeves announced £14 billion in measures. These included £4.8 billion in welfare cuts to help meet her self-imposed fiscal rules. Despite a short-term growth increase of 0.7% in early 2025, the OECD warns that business confidence is falling. It says this could slow growth even further.
OECD Calls for Targeted Reforms to Boost UK Economy
The OECD recommends reforms to help restore stability. It suggests closing tax loopholes and updating council tax bands. Many bands still reflect property values from 1991 in England and 2003 in Wales. Updating them could increase revenue without putting too much pressure on households.
Global Growth Slows as Trade Tensions Rise
The OECD also cut its global growth forecast from 3.1% to 2.9%. It blamed a sharp rise in trade barriers, especially from the United States. The US, under President Trump, has introduced new tariffs that have shaken global markets. The OECD now expects US growth to fall from 2.2% to 1.6% in 2025.
While many countries face similar problems, the OECD says the UK economy is especially vulnerable. Its high debt and limited budget space make economic reform more urgent than ever.
