UK Inflation Forecasted to Be Highest in G7, OECD Warns
The UK is projected to experience the highest inflation rate among the G7 advanced economies in 2025, according to a recent report by the Organization for Economic Co-operation and Development (OECD). The OECD has raised its inflation forecast for the UK to 3.5%, citing higher food costs and a "tighter fiscal stance" as contributing factors.
OECD's Inflation and Growth Projections
The OECD's latest forecast indicates that the UK's inflation rate will reach 3.5% in 2025, surpassing previous estimates. While inflation is expected to decrease to 2.7% in 2026, it will still be among the highest within the G7. Concurrently, the OECD projects UK economic growth to slow to 1% in 2026, primarily due to higher taxes, reduced government spending, increased trade costs and economic uncertainty.
- 2025 Inflation Forecast: 3.5%
- 2026 Inflation Forecast: 2.7%
- 2025 Growth Forecast: 1.4%
- 2026 Growth Forecast: 1.0%
Government and Opposition Reactions
Responding to the OECD's report, Chancellor Rachel Reeves stated that the figures "confirm that the British economy is stronger than forecast". However, Shadow Chancellor Sir Mel Stride criticized the current administration, suggesting that "under Labour, Britain is in a high tax, high inflation, low growth doom loop". Discussions surrounding potential tax increases are intensifying as the Budget approaches, with analysts suggesting the need for substantial revenue to meet borrowing targets.
Factors Contributing to UK Inflation
Several factors are contributing to the UK's projected high inflation rate. Rising food prices, driven by increased costs faced by UK companies, are a significant concern. These costs include the rise in employers' National Insurance Contributions and a higher minimum wage, which analysts say have been passed on to consumers, further pushing up inflation. The Bank of England is closely monitoring the situation, with a current inflation target of 2% and a warning that the UK is "not out of the woods yet".
Global Economic Outlook
The OECD has revised its global economic growth forecast for 2025 upward to 3.2%, citing the economy's resilience in the first half of the year. Strong investment in technology sectors such as artificial intelligence (AI) has boosted growth in the US. However, the OECD cautions that global growth will "soften noticeably" in the second half of the year due to the impact of higher tariffs, particularly those imposed by the US. Donald Trump's tariff policies, with the average tariff applied on imports to the US reaching 19.5% at the end of August (the highest since 1933), are expected to dampen global trade and investment.
