The OECD has cut its forecast for UK growth in 2027 to 1%, down from its previous prediction of 1.1%, delivering a fresh blow to Prime Minister Andy Burnham's ambition to deliver "growth in every postcode."
The international economic body's warning comes just weeks before Chancellor John Healey delivers his Budget, with the Government already facing pressure over spending, debt and the need for difficult decisions.
Global growth 'resilient' but price pressures persist
The OECD said global growth had remained "resilient" despite the economic fallout from the conflict in the Middle East. However, it warned that "stronger price pressures, weaker real income growth and higher interest rates" would moderate growth momentum in many economies.
For Britain, the picture is particularly awkward for Mr Burnham, who has made delivering economic growth across every part of the country a key ambition.
Inflation forecast lowered but expected to stay higher for longer
The OECD expects UK inflation to reach 3.1% this year, lower than its previous forecast of 3.6%. But inflation is now expected to remain higher for longer, reaching 2.6% in 2027.
The body warned that a renewed energy price shock in September was expected to keep inflation elevated. It said higher energy and food prices would "erode household purchasing power," while further disruption to oil and gas supplies could weigh on economic growth.
Stark warning over government finances
The OECD also issued a stark warning over government finances. It said public debt had risen sharply following successive crises, adding to fiscal pressures across many economies.
"Stronger efforts" are needed to contain and reallocate government spending, improve public-sector efficiency and enhance revenues, it said.
The warning will pile pressure on the Government ahead of the Budget. The Sun has reported that Mr Healey may be forced to find £15 billion to maintain the financial buffer left by Rachel Reeves, which stood at £24 billion. Mr Burnham has already warned that "difficult decisions" will have to be made.
