The Organisation for Economic Co-operation and Development (OECD) has issued a cautionary assessment of the UK economy, warning that mounting public debt and growing trade challenges are weakening the country’s growth prospects. In its latest global economic outlook, the OECD downgraded the UK’s GDP growth forecast to 1.3% for 2025 and 1.0% for 2026, marking a slight but significant decline from previous estimates. The revision reflects an increasingly fragile economic environment, with both domestic fiscal constraints and international trade tensions contributing to a subdued outlook.
A key concern for the OECD is the UK’s rising public debt, which is projected to grow from 101.3% of GDP in 2024 to over 104% by 2026. This upward trajectory in national debt is paired with persistently high interest payments, putting added pressure on the public finances. The OECD warns that this fiscal burden could limit the government’s capacity to respond to future economic shocks or invest in long-term growth initiatives. To counter these risks, the organisation is urging the UK to take steps toward increasing tax revenues, particularly by closing loopholes and minimizing tax distortions. Such measures, the OECD says, would enhance fiscal sustainability and reduce the vulnerability of the economy to external shocks.
Trade tensions, especially those involving tariffs and shifting global supply chains, are another factor weighing on the UK’s economy. The OECD highlights the economic uncertainty created by recent U.S. tariff threats and the broader slowdown in global trade. These pressures have disrupted exports and increased input costs for UK businesses, compounding the challenges faced by manufacturers and exporters. In this environment, business investment remains sluggish, and confidence among firms and consumers has weakened.
Inflationary pressures persist as well, particularly in the services sector, where prices have remained stubbornly high. The OECD expects inflation to stay above the Bank of England’s target throughout 2025, raising the likelihood of continued monetary tightening. Higher interest rates, in turn, could suppress consumer spending and discourage new investment, further slowing economic momentum.
The OECD recommends that the UK adopt a more balanced fiscal strategy that includes selective spending cuts and tax reforms while supporting vulnerable households. It also emphasizes the importance of structural reforms aimed at boosting labor market participation and encouraging private sector investment. As global conditions remain volatile, the UK’s ability to implement effective fiscal and trade policies will be crucial to navigating these economic headwinds and restoring stronger growth.
