The UK’s economic growth is expected to slow this year, with fresh warnings issued over rising public debt and global trade barriers, according to a new report from the Organisation for Economic Co-operation and Development (OECD).
The influential policy group revised its forecast for UK growth in 2025 to 1.3%, down from 1.4% in March, citing mounting fiscal pressures and the impact of renewed US tariff policies under President Donald Trump. The OECD warned that the UK faces specific challenges due to its “very thin” fiscal buffer and called on Chancellor Rachel Reeves to take decisive action in her upcoming Spending Review.
“Strengthening the public finances remains a priority,” the OECD said, urging the government to consider a combination of tax reforms and targeted spending cuts to stabilise the economy.
The warning comes ahead of Reeves’ anticipated Spending Review next week, where she must navigate difficult choices amid pre-allocated commitments to defence and the National Health Service. In March, Reeves introduced £14 billion in fiscal measures, including £4.8 billion in welfare cuts, to maintain compliance with Labour’s self-imposed fiscal rules.
Despite better-than-expected growth of 0.7% in the first quarter of 2025, the OECD said business sentiment is deteriorating and momentum is slowing. The think tank also lowered its projection for UK growth in 2026 to 1%, down from 1.2%.
“The state of the public finances is a significant downside risk to the outlook if the fiscal rules are to be met,” the report stated. Among the OECD’s recommendations were reforms to the council tax system—currently based on outdated property values from 1991 in England and 2003 in Wales—and the closure of tax loopholes to increase revenues.
Globally, the OECD downgraded its forecast for economic growth to 2.9% from 3.1%, citing the rapid escalation of trade barriers, particularly under Trump’s administration. Chief economist Alvaro Pereira said nearly all major economies were now expected to underperform previous forecasts.
“We’re forecasting a downgrade for almost everybody,” Pereira told the BBC. “We’ll have a lot less growth and job creation than we had forecasted in the past.”
The United States is among the hardest hit, with its 2025 growth outlook slashed from 2.2% to 1.6%. Although Trump has claimed tariffs are fuelling a strong recovery, official data showed the US economy contracted at an annual rate of 0.2% in the first quarter of this year — the first decline since 2022.
The OECD concluded that without clearer long-term strategies, countries like the UK risk being left vulnerable to rising debt, political uncertainty, and global economic instability.
