The UK economy is expected to slow down more than previously thought, with growth projected at just 1.3% in 2025 and 1% in 2026, according to the latest forecast by the Organisation for Economic Co-operation and Development (OECD). This downgrade comes as Donald Trump’s new tariffs on global imports create uncertainty in trade and investment across key economies, including the UK.
The OECD’s updated report highlights that nearly all major economies will see weaker growth over the next two years. The UK is being hit not only by global trade barriers but also by domestic challenges like higher inflation and tight public spending. The OECD had previously predicted UK growth of 1.4% in 2025 and 1.2% in 2026, but those numbers have now been reduced.
Globally, the OECD cut its growth forecast from 3.3% to 2.9% for both 2025 and 2026. The United States, Mexico, and Canada are expected to feel the largest impact from the new tariffs, but the ripple effects are spreading to Europe and beyond. In the UK, inflation is staying high, which limits the Bank of England’s ability to reduce interest rates quickly.
The report said the UK had a strong start in 2025, with a 0.7% rise in GDP during the first quarter. However, that momentum is now slowing. Consumer confidence remains low, business investment is falling, and retail sales are unstable. These are signs of growing economic weakness that could worsen if the global trade situation does not improve.
Trump’s trade policies are seen as a major cause of the slowdown. The tariffs include a 25% tax on steel, aluminium, and cars, and a 10% tariff on a wide range of other imported goods. These trade barriers are making it harder for businesses to plan, export, and invest in long-term growth.
The OECD warned that the rise in tariffs has triggered a wave of uncertainty that is holding back economic activity in many countries. In its report, the organisation said the UK government should try to limit daily spending to create more room for public investment. However, with limited budget flexibility, even small economic shocks could lead to further cuts in services or delays in important projects.
UK Chancellor Rachel Reeves is expected to present the government’s spending plans next month. She faces pressure to explain how she will manage the economy under these difficult conditions. The Office for Budget Responsibility had already projected 1% growth for 2025 before the new US tariffs were introduced, and the OECD’s revised outlook confirms those worries.
Interest rates in the UK have been cut four times this year, but inflation remains above the central bank’s target. The OECD expects that inflation will slowly fall by 2026, but in some countries hit harder by tariffs, it may rise before falling again.
Business sentiment in the UK has also dropped sharply, with many firms delaying investments and cutting costs. Consumer spending is also weak, as households face rising prices and financial uncertainty. All of this makes a quick recovery less likely.
The OECD will update its global and country-specific forecasts again later this year, depending on how trade tensions evolve and whether inflation begins to ease.
