OECD Projects UK as G-7’s Second Fastest-Growing Economy This Year

According to the OECD’s latest economic outlook, the UK is set to be the second-fastest-growing economy in the G-7 this year. Britain’s GDP growth forecast has been revised slightly upward to 1.4% for 2025, putting it just behind the United States. However, growth is expected to slow to 1% in 2026 as tighter fiscal rules and US tariffs weigh on demand.

Chancellor Rachel Reeves welcomed the findings, proving that Britain’s economy is stronger than expected. She promised new pro-growth measures ahead of November’s autumn budget, set for November 26. Reeves said she focuses on building “an economy that works for working people.”

Inflation Still a Major Hurdle

While growth has surprised to the upside, inflation remains the UK’s most pressing problem. The OECD raised its inflation forecast for 2025 to 3.5%, higher than its earlier estimate of 3.1%. It also expects inflation to remain elevated at 2.7% in 2026, well above the Bank of England’s 2% target. That would leave Britain with the highest inflation rate in the G-7.

Higher food costs and wages that remain above levels consistent with inflation targets have driven sticky price rises. The Bank of England has signaled it will slow the pace of monetary easing to wrestle with the fresh price pressures. Last week, the Bank kept interest rates unchanged, warning the UK was not “out of the woods yet.”

Political Reactions

The updated forecast has sparked a clash between the government and opposition over the direction of the economy. Rachel Reeves argued that the OECD data confirms Britain’s resilience, stressing her plans to balance growth with fiscal discipline. She faces speculation of possible tax rises, with analysts suggesting up to £30 billion may be needed to meet her debt rules.

Opposition lawmakers, however, accused the Labour government of mismanagement. Shadow chancellor Sir Mel Stride said families were stuck in “a high tax, high inflation, low growth doom loop.” He warned the UK risked Faltering toward stagflation if inflation pressure persisted while economic momentum slowed.

Global Outlook Adds Pressure

The economic calendar shows that the global context for Britain remains to be seen in upcoming policy meetings. The OECD revised global growth higher to 3.2% for 2025, up from June’s 2.9% forecast. The improvement reflects resilience in the first half of the year, especially in the United States. However, US growth is expected to soften later due to higher trade tariffs, which already stand at a historic high of 19.5%.

Those tariffs, pushed by Washington to support domestic manufacturing, could ripple across supply chains. For the UK, already facing elevated inflation and a slow pace of growth, rising trade costs may further pressure its economy. The OECD reminded governments that open markets still drive prosperity.

Written By Fazal Ul Vahab C H

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