Debt and Trade Issues Weaken UK Growth, OECD Warns
The Organisation for Economic Co-operation and Development (OECD) has downgraded its forecast for UK economic growth, citing mounting public debt and escalating trade tensions as key factors undermining the country’s economic prospects. The latest projections reveal a slowdown in growth to 1.3% in 2025, with a further decline to 1.0% expected in 2026, reflecting the combined impact of tighter financial conditions, elevated uncertainty, and increased tariffs affecting trade.
UK Growth Forecasts Revised Downward
The OECD’s updated outlook signals a more cautious economic environment for the UK. Growth is now expected to slow from 1.4% to 1.3% in 2025 and further drop to 1.0% in 2026, down from previous estimates of 1.2%. This moderation comes despite a strong start to the year, with the UK economy expanding by 0.7% in the first quarter of 2025, boosted by a 2.9% rise in investment and a 5.6% increase in goods exports.
However, the positive momentum is overshadowed by persistent risks. The OECD highlights that trade tensions and tighter financial conditions are dampening private consumption and business investment, key drivers of economic activity. Although the UK is still projected to grow faster than some major economies such as France, Germany, and Japan, the growth trajectory is clearly weakening.
Rising Public Debt and Fiscal Pressures
Public finances remain under significant strain, with the OECD forecasting public debt to reach 104% of GDP by 20261. The cost of servicing this debt continues to weigh heavily on the fiscal balance, limiting the government’s flexibility to stimulate growth.
In response, the UK government, led by Labour Finance Minister Rachel Reeves, has reaffirmed its commitment to fiscal discipline. Reeves has pledged to adhere to fiscal rules that ensure daily government spending is covered by tax revenues and aims to reduce public debt as a share of GDP by the 2029-30 fiscal year. This approach underscores the delicate balancing act between managing debt levels and supporting economic expansion.
Trade Barriers and Tariff Increases Impact Growth
Trade issues are a central concern in the OECD’s assessment. The organization points to increased trade barriers, particularly tariffs imposed by the United States, as a major factor contributing to the downgrade in growth forecasts. Since the start of 2025, the effective tariff rate on UK goods exported to the US has risen by nearly 8 percentage points.
These tariff hikes, along with retaliatory measures and broader trade fragmentation, threaten to disrupt global supply chains and reduce trade volumes. The OECD warns that such trade policy uncertainties are eroding consumer and business confidence, further curbing investment and economic activity.
Global Economic Slowdown and Its Effects on the UK
The UK’s challenges are part of a broader global slowdown. The OECD has trimmed its global growth forecast to 2.9% for both 2025 and 2026, down from earlier predictions of 3.1% and 3.0% respectively1. Key economies such as the United States, Canada, Mexico, and China are all expected to experience slower growth amid rising trade costs and policy uncertainty.
OECD Secretary-General Mathias Cormann emphasized the importance of international cooperation to maintain open markets and uphold rules-based trade. He warned that escalating trade tensions could undermine global economic stability and growth prospects.
Official Reactions and Outlook
Rachel Reeves, the UK Finance Minister, acknowledged the difficult economic environment but stressed the government’s resolve to maintain fiscal discipline while fostering growth. She reiterated the commitment to balancing the budget and reducing debt over the medium term.
OECD economist Varoira commented on the widespread impact of the downgrade, noting that nearly all countries face slower growth and fewer job opportunities than previously anticipated. The OECD advocates for policies that support investment in education, skills development, and labor mobility to help mitigate these challenges.
The OECD’s latest economic outlook paints a sobering picture for the UK economy, highlighting how rising public debt and increased trade barriers are slowing growth. With growth forecasts revised downward for 2025 and 2026, the UK faces a challenging period marked by fiscal constraints and external trade pressures. The government’s focus on fiscal responsibility and international cooperation will be critical in navigating these headwinds to sustain economic resilience.
