UK growth to be reined in amid pressure on public finances, OCED says

British economic growth should be stifled by continuous pressure on the country’s public finances, the Organization for Economic Cooperation and Development (OECD) said on Tuesday.

The United Kingdom is expected to increase by 1.3% in 2025 before slowing 1% in 2026, The OECD said in its last global economic perspectives Report, “attenuated by increased trade tensions, stricter financial conditions and high uncertainty”.

The organization has planned that growth “will remain modest”, affected by reinforced trade tensions and uncertainty surrounding consumer confidence and commercial feeling.

“Travel on external demand, private consumption and commercial investment should more than compensate for the positive effects of fall budgetary measures on government consumption and investment,” said the OECD.

Although the budget deficit should drop from 5.3% in 2025 to 4.5% in 2026, according to OECD forecasts, debt interest expenses remain high. Public debt should continue to increase and reach 104% of GDP [gross domestic product] In 2026, said the OECD.

The Labor Government and the Minister of Finance Rachel Reeves have repeatedly said that their priority was to stimulate growth and to obtain order in the country’s public finances. In public spending plans announced last October, Reeves is committed to self-imposed tax rules that daily expenses must be respected by tax revenue, the creation of public debt will fall in part of economic production by 2029-30.

She said on several occasions that the budgetary rules are “non-negotiable” despite the measures leaving her small room for maneuver to act in the event of an unexpected economic shock, in the midst of dull growth for the United Kingdom, higher borrowing costs and broader global trade tensions and uncertainty for businesses.

While the OECD has agreed that “budgetary prudence is required because the monetary position is gradually softening”, warned that “efforts to rebuild buffers should be intensified in the face of a highly limited budgetary policy and substantial drop -down risks, while public investments that improve productivity should be preserved.”

The “very thin budgetary stamps” of the government might not be sufficient to provide support without breaking the budgetary rules if other shocks materialize.

Since coming to power a little over a year ago, the Labor government has already announced a series of social expenditure reductionsEmployer tax increases and planning reforms designed to reduce administrative formalities and stimulate infrastructure and housing development projects. He also announced an increase in defense expenses to 2.5% of GDP by 2027 which will be funded by reductions in aid abroad.

After restricting public loans and excluding additional tax increases, there is now increasing speculation according to which Reeves could announce new budget cuts in the expenditure examination on June 11.

The OECD urged the government to stick to its plans to strengthen public finances and deliver its ambitious tax plansincluding thanks to the next criticism.

“A balanced approach should combine targeted discount drops, including strengthening tax gaps; revenue generation measures such as the re-evaluation of advice tax bands based on the value of the updated properties; and the abolition of distortions of the tax system,” he noted.

He also called on the United Kingdom to reverse a drop in labor market participation by implementing pro-work reforms in the welfare state “while protecting the most vulnerable”.