The Organisation for Economic Cooperation and Development (OECD) has warned that the United Kingdom’s economic growth is expected to remain modest in 2025 and 2026, despite public finances being squeezed. The country is projected to grow 1.3% in 2025 before slowing to 1% in 2026.
Substantial debt interest payments will continue to weigh on the fiscal balance and push up public debt in the UK. The OECD attributed this to an ongoing squeeze on the country’s public finances, heightened trade tensions, tighter financial conditions, and elevated uncertainty.
The Labour government has committed to boosting growth and getting public finances in order, with a focus on self-imposed fiscal rules. Finance Minister Rachel Reeves has pledged to reduce public debt as a share of economic output by 2029-30, but her efforts may be constrained by the need to balance short-term needs with long-term goals.
The OECD emphasized the importance of fiscal prudence, urging the government to strengthen its public finances and deliver on its ambitious fiscal plans. It recommended a balanced approach that includes targeted spending cuts, revenue-raising measures, and reforms to the tax system.
Reeves is set to unveil her first “Spending Review” next month, which will outline long-term public spending plans for government departments. The OECD warned that the government’s current plans may not be sufficient to support growth in the face of uncertainty, emphasizing the need for targeted measures to boost productivity and labor market participation.
In summary, the UK’s economic growth is expected to remain modest due to fiscal challenges, with a focus on boosting growth and reducing public debt. The OECD has urged the government to prioritize fiscal prudence and deliver on its plans through targeted spending cuts, revenue-raising measures, and tax reforms.
Source: https://www.cnbc.com/2025/06/03/uk-growth-to-be-reined-in-amid-pressure-on-public-finances-oced-says.html