A major international economic body has delivered a stark warning that the UK government's current policy direction, including restrictive immigration measures, is set to significantly hinder the country's economic growth in the coming years.
OECD Forecast Paints a Challenging Picture
The Organisation for Economic Co-operation and Development (OECD) has published a new report analysing the UK's economic prospects. Its findings present a difficult outlook, attributing the nation's struggles to a combination of factors. The report highlights that the UK is expected to experience the highest inflation rate among G7 nations this year, at 3.5 per cent. While this is projected to ease slightly next year, the UK will still have the second-highest inflation in the group, behind only the United States.
Alongside persistent price pressures, the pace of economic expansion is forecast to slow markedly. The OECD projects UK economic growth will decelerate to just 1.2 per cent next year. Furthermore, the unemployment rate is anticipated to rise, reaching 5 per cent by 2027.
Policy Choices Under the Microscope
The OECD's analysis points directly to specific government policies as contributing causes for this sluggish performance. It identifies sluggish labour productivity and weak growth in the working-age population as key structural issues. Crucially, the report notes that the latter is partly a consequence of slowing inward migration, a trend influenced by the government's stance. These demographic and productivity challenges are compounded by past adjustments to tax and public spending.
The report's timing is politically sensitive, coming after Chancellor Rachel Reeves presented her recent Budget. Ms Reeves has defended her fiscal plan, stating its aims are to reduce NHS waiting lists, cut public borrowing, and lower the cost of living for households. However, the Shadow Chancellor has criticised the choices made, arguing they risk damaging incentives to work, undermining businesses, and discouraging vital investment.
Broader Implications for the UK Economy
The OECD's warning underscores a growing debate about the long-term economic impact of demographic and fiscal policy. By linking slower migration explicitly to weaker growth in the working-age population, the report suggests that policies designed to reduce immigration may have unintended economic consequences, including constraining the labour market and potential output.
This analysis from a respected global institution represents a fresh challenge for the government as it seeks to balance political promises with economic realities. The forecast of sustained high inflation and rising unemployment will add pressure on ministers to refine their approach to stimulate growth without exacerbating inflationary pressures, a complex task in the current climate.
