OECD Warns UK Budget Will Slow Rate Cuts and Prolong Inflation

Higher public spending and borrowing are projected to boost short-term growth but keep inflation above target and interest rates elevated longer than expected.

The OECD predicts UK interest rates will decline to 3.5% by early 2026, slower than previously forecast, due to persistent inflation driven by increased government spending.
Inflation is expected to remain above the Bank of England’s 2% target, with forecasts of 2.7% in 2025 and 2.3% in 2026, partly due to wage-driven pressures in the service sector.
UK GDP growth has been upgraded to 1.7% for 2025, making it the fastest-growing European economy in the G7 over the next three years, but growth is expected to slow to 1.3% by 2026.
The OECD highlights concerns about the UK’s shrinking labor force and calls for reforms to welfare and childcare policies to boost workforce participation, particularly among women.
The organization warns that the UK’s public debt will remain above 100% of GDP and rising, urging fiscal responsibility to ensure long-term economic stability.