The UK’s economic growth forecast has been downgraded by the Organisation for Economic Cooperation and Development (OECD), which has urged global leaders to de-escalate rising trade tensions.
According to the OECD’s latest projections, the UK’s GDP growth is expected to reach 1.4 per cent this year—0.3 percentage points lower than previously forecast—while 2026 growth has been revised down to 1.2 per cent. Inflation expectations remain unchanged at 2.7 per cent for this year and 2.3 per cent in 2026.
Despite the downgrade, Britain is set to be the second-fastest growing economy in the G7, behind only the United States. However, the figures present a challenge for Chancellor Rachel Reeves ahead of the upcoming spring statement, as she faces mounting pressure to meet fiscal targets without resorting to significant spending cuts.
The OECD attributes the slowdown to global trade uncertainties and inflationary pressures, which are expected to keep UK interest rates at 4 per cent until late 2026. The Bank of England’s base rate currently stands at 4.5 per cent.
Reeves responded to the report by highlighting the government’s commitment to economic stability, stating: “This report shows the world is changing, and increased global headwinds such as trade uncertainty are being felt across the board. A changing world means Britain must change too, and we are delivering a new era of stability, security and renewal, to protect working people and keep our country safe.”
The most significant economic downgrades in the OECD report were for North America, following the Trump administration’s announcement of a 25 per cent blanket tariff on imports from Canada and Mexico, set to take effect next month.
Canada’s growth forecast has been slashed by 1.3 percentage points, with its economy now expected to expand by just 0.7 per cent in 2025 and 2026. Mexico is forecast to fall into recession, with contractions of 1.3 per cent this year and 0.6 per cent in 2026—downgrades of 2.5 and 2.2 percentage points, respectively.
These revisions have pushed the UK higher in the G7 growth rankings, overtaking Canada. Other European economies have also seen downward adjustments, including Germany (0.4 per cent in 2025), France (0.8 per cent in 2025) and Italy (0.7 per cent in 2025). Spain was the only major economy to see an upgrade, with GDP growth projections rising to 2.6 per cent in 2025 and 2.1 per cent in 2026.
The OECD warns that the US economy itself is at risk of a slowdown due to its trade policies. The country’s GDP growth forecast for 2026 has been reduced by 0.5 percentage points to 1.6 per cent. This year, US economic growth is expected to decline from 2.8 per cent in 2024 to 2.2 per cent—0.2 percentage points lower than previous projections.
The OECD’s estimates are based on the assumption that the US will impose a universal 25 per cent tariff on imports from Canada and Mexico next month. However, the organisation warns that if the Trump administration proceeds with its proposed 10 per cent tariff on all imported goods—including those from the UK and the EU—global economic growth could take a further hit, with GDP expected to shrink by 0.3 percentage points and inflation rising by 0.4 percentage points annually for the next three years.
The Paris-based OECD has raised concerns that increasing trade protectionism could lead to long-term economic damage, worsening living standards and weakening global growth.
“Countries need to find ways of addressing their concerns together within the global trading system,” the OECD stated, urging governments to bolster supply chain resilience and implement regulatory reforms that encourage labour market dynamism and workforce skills development.
In a direct rebuke to the Trump administration’s tariff strategy, the OECD warned that any tax revenue gains from import levies would likely be offset by a weaker economy and declining public finances.
“In some countries, including the United States, the combined fiscal impact of the rise in tariff revenue and broader changes in the economy is negative, implying that additional tax increases or lower fiscal expenditure are needed to keep the overall budget deficit unchanged,” the report noted.
With global trade uncertainty mounting, the OECD’s latest warning underscores the risks facing the UK economy and businesses navigating an increasingly unpredictable global landscape.
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UK economy downgraded as OECD warns of trade war fallout