Key facts
- UK state growth is projected to be 5.2 percentage points between 2019 and 2031, according to the IMF.
- The OECD forecasts the UK economy will grow by 1.4% this year and 1.2% in 2026.
- UK inflation is expected to remain the highest in the G7 at 3.5% this year.
- The OECD predicts UK unemployment will rise to 4.9% in 2026.
- The Bank of England is expected to implement two more interest rate cuts, bringing the key rate to 3.5%.
The International Monetary Fund (IMF) projects that the UK state will experience a growth of 5.2 percentage points between 2019 and 2031, indicating a faster pace than France over the same period. However, the Organization for Economic Co-operation and Development (OECD) offers a more tempered outlook for the UK economy.
The OECD forecasts steady growth of 1.4% for the UK this year, anticipating a slowdown to 1.2% in 2026. This forecast is an improvement on previous estimates for next year. The OECD attributes the anticipated slowdown partly to "fiscal consolidation," with tax increases and spending adjustments weighing on household disposable income and consumption. "Sluggish" productivity and weak growth in the working-age population, influenced by slowing inward migration, are also cited as drags on the economy.
Despite these headwinds, the OECD expects a slight boost in late 2026 from lower interest rates and a gradual improvement in global trade. The Bank of England is predicted to make two more interest rate cuts, bringing the key rate down to 3.5%. UK inflation is forecast to remain among the highest in the G7 at 3.5% this year, before easing to 2.5% next year and 2.1% in 2027, partly due to measures lowering energy and fuel costs.
Unemployment is projected to rise to 4.9% in 2026 and 5% in 2027. Chancellor Rachel Reeves highlighted the Budget's expected impact on inflation and living costs, while Shadow Chancellor Mel Stride criticized the government's policies for potentially weakening growth. The OECD also noted that while the government deficit should improve, caution is needed due to downside risks to growth and upside risks to inflation.