The Organisation for Economic Co-operation and Development (OECD) yesterday announced that it is forecasting a halt to the United Kingdom’s economic growth in the coming year. This decline is the result of recent budgetary choices by Chancellor Rachel Reeves. True, according to the OECD, growth is projected to weaken next year before rebounding to 3.1% by 2027. The positive outlook follows Reeves’ proposal of dramatic tax increases in the recently released Budget. Together, these increases will add up to £26 billion over the next five years.
Tax increases and spending cuts were called out by the OECD as an “ongoing headwind” to the UK’s economic recovery. This evaluation has come about due to a freeze on personal earnings tax thresholds. This freeze will almost certainly serve to further constrain household disposable income. In its statement, the OECD noted that this kind of fiscal consolidation would be a drag on consumption, affecting economic performance as a whole.
Inflation is a highly urgent concern for the UK economy. Yet real inflation is currently raging at over 3.5%, the most of any G7 country. As a consequence of the war in Ukraine, the OECD has sharply revised its growth forecasts. They project inflation to fall to 2.5% in 2024, down from their prior prediction of 2.7%. This amendment bolsters Reeves’ argument. She argues that her budget choices will ultimately reduce inflation by 0.4 percentage points, helping both households and businesses.
As promised, Chancellor Rachel Reeves has come under a blistering attack immediately following delivery of her first Budget. Critics say she duped the public about the state government’s fiscal health in advance of making the announcement. Shadow Chancellor Mel Stride responded to these claims by stating, “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.”
Despite these misgivings, Reeves was upbeat on the merits of her Budget in a speech delivered shortly after its release.
“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.” – Chancellor Rachel Reeves
In late 2026, the British economy is poised to receive a macroeconomic shot in the arm. This increase would be largely driven by anticipated decreases in interest rates and improved terms of global trade. The OECD continues to expect subdued growth in the UK, forecasting it will drop to just 1.3% in 2027.
The organization has warned that current economic pressures could “inflict significant damage on supply chains and global output.” Policy across all levels of government is rapidly adapting to respond to persistent, long-term economic struggles. Both the public and private sectors are watching these developments very closely, hoping to usher in a more predictable economic landscape.