The UK is expected to experience the highest inflation among G7 nations this year, according to the Organisation for Economic Co-operation and Development. Rising food prices and a £25bn annual increase in employer national insurance contributions are pushing costs higher. The OECD predicts UK inflation will average 3.5% in 2025, above the United States, which is forecast at 2.7%, despite Trump-era tariffs that raised import costs.
Inflation in the UK is expected to ease to 2.7% in 2026 but remain above the Bank of England’s 2% target. The central bank pointed to rising costs for regulated services, including water and energy bills, along with the national insurance increase, as key drivers of above-target inflation.
The OECD also highlighted that tighter fiscal policies, including higher taxes and lower government spending, are likely to slow economic growth over the next year. The UK’s GDP is forecast to grow 1.4% in 2025, slightly up from 1.3% in previous forecasts, but growth is expected to remain modest at 1% in 2026. These figures are central to Chancellor Rachel Reeves’ upcoming budget, where tax rises are anticipated.
In G7 comparisons, the UK’s projected 2026 growth would rank behind the US at 1.5%, Germany at 1.1%, and Canada at 1.2%, but ahead of Italy, Japan, and France. For 2025, the UK is expected to be the second fastest-growing economy in the group, after the US.
Reeves said the forecasts show the UK economy is stronger than expected, noting it was the fastest-growing G7 economy in the first half of the year. She added that further work is needed to build an economy that rewards working people. Conservative leader Kemi Badenoch criticized Labour’s economic management, blaming tax hikes for slowing growth and contributing to the highest inflation in the G7.
The OECD’s interim economic outlook also examined global growth. It raised its projection for 2025 global GDP to 3.2% from 2.9%, citing stronger-than-expected performance in emerging markets. Industrial production and trade were boosted by companies moving shipments ahead of higher tariffs. However, the OECD expects global growth to slow to 2.9% in 2026, with cooling labor markets and the fading impact of front-loaded exports contributing to weaker prospects.
US trade policies, including Trump’s “reciprocal” tariffs averaging 19.5% at the end of last month—the highest since 1933—are expected to weigh on US GDP growth, which is forecast to decline from 2.8% last year to 1.8% this year and 1.5% in 2026. Slower net immigration is also expected to reduce growth. The OECD noted that the full impact of these higher tariffs has yet to be felt in the US economy.
Separately, a private sector survey found that business confidence cooled in September after earlier gains. The S&P Global flash composite purchasing managers’ index fell to 51.0 from August’s 12-month high of 53.5, showing slower expansion. Rising input costs and the prospect of further tax increases in the upcoming budget were cited as reasons for weaker sentiment among businesses.
