The UK is set to experience the highest inflation among G7 nations in 2025, according to the Organisation for Economic Co-operation and Development (OECD). The Paris-based body forecasts UK inflation will average 3.5% this year, exceeding the US rate of 2.7% despite Donald Trump's tariffs. The OECD attributes the rise to resurgent food prices and the UK government's £25bn increase in employer national insurance contributions.
Inflation is expected to slow to 2.7% in 2026, still above the Bank of England's 2% target. The Bank has cited regulated prices and the NICs rise as factors. The OECD also warned that the UK's 'tighter fiscal stance'—higher taxes and reduced government spending—would weigh on economic growth.
The OECD projects UK GDP growth of 1.4% this year, up from 1.3% in its previous forecast, but unchanged at 1% for 2026. This would place the UK in the middle of the G7 for growth next year, behind the US, Germany, and Canada. Chancellor Rachel Reeves faces a challenging budget on 26 November, with tax rises expected.
Responding to the forecasts, Reeves said the figures confirm the UK economy is 'stronger than forecast' and has been the fastest-growing G7 economy in the first half of the year. Conservative leader Kemi Badenoch called the report a 'damning verdict' on Labour's economic management, blaming tax hikes for shrinking growth and high inflation.
The OECD's interim outlook also noted that Trump's tariffs have had a slower-than-expected impact but will hit global growth. Global GDP growth is upgraded to 3.2% for 2025, but is expected to slow to 2.9% in 2026. Meanwhile, a separate survey showed UK private sector activity eased in September, with the S&P Global PMI falling to 51.0 from August's 53.5.
