The UK’s economic growth is facing fresh pressure from rising debt costs and global trade tensions, according to a new report from the Organisation for Economic Co-operation and Development (OECD). The international think tank has downgraded its forecast for UK growth in 2025 to 1.3%, slightly below its 1.4% prediction in March.

The OECD said the UK is particularly vulnerable due to its “very thin” fiscal buffer and urged Chancellor Rachel Reeves to take stronger action to improve public finances — including raising taxes and cutting spending.

Weak Fiscal Position a “Downside Risk”

While the UK economy posted stronger-than-expected growth of 0.7% in early 2025, the OECD warned that “momentum is weakening,” citing falling business confidence and continued uncertainty over government spending plans.

The think tank projected UK growth to slow further to 1.0% in 2026, down from an earlier estimate of 1.2%. It cautioned that Reeves’ ability to meet her self-imposed fiscal rules could be at risk without decisive action.

“The state of the public finances is a significant downside risk to the outlook,” the OECD said, calling for a “balanced approach” that includes targeted spending cuts and closing tax loopholes.

It also suggested a revaluation of council tax bands, which in England are still based on property values from 1991.

Reeves Responds: Plan for Change Coming

In response, Chancellor Reeves said she remains focused on delivering her “plan for change” to ease the cost of living and put “more money in people’s pockets.”

Her upcoming Spending Review, due next week, is expected to outline difficult funding choices amid tight fiscal conditions. The government has already earmarked billions for defence and NHS funding, with additional pressure from Labour’s pledge to reduce waiting lists.

Back in March, Reeves introduced £14bn in fiscal measures, including £4.8bn in welfare cuts, to preserve headroom under her fiscal rules.

Global Growth Slows Amid Trade Disruption

Globally, the OECD cut its world economic growth forecast to 2.9% for 2025, down from 3.1%, blaming escalating trade barriers and geopolitical uncertainty.

“We are forecasting a downgrade for almost everyone,” said Alvaro Pereira, the OECD’s chief economist. “There will be less growth and job creation than previously expected.”

Trade tensions, particularly driven by the return of US President Donald Trump, have played a major role in the slowdown. The OECD warned of rising global inflation and economic disruption due to tariffs and unpredictability in US trade policy.

Despite Trump’s claims that tariffs are fueling growth — including a recent social media post declaring “Because of Tariffs, our Economy is BOOMING!” — the latest US data shows a 0.2% annualised contraction in Q1 2025, the country’s first decline since 2022.

The OECD also cut its 2025 US growth forecast from 2.2% to 1.6%, and expects further slowing into 2026.