Labour faces fresh economic blow as OECD warns of sluggish economy, stubborn inflation and pressure on borrowing costs
Britain’s economy is forecast to barely grow next year, dealing another economic blow to Andy Burnham’s Labour Government as it prepares for a difficult Budget.
The Organisation for Economic Co-operation and Development has cut its forecast for UK economic growth in 2027 to just 1 per cent, leaving Britain facing another year of sluggish expansion while inflation remains above the Bank of England’s target.
As first reported by The Telegraph, the Paris-based organisation also believes the Bank of England will ultimately need to cut interest rates to support the struggling economy, predicting Bank Rate will fall from 3.75 per cent to 3.5 per cent during 2027.
The warning leaves Labour confronting an increasingly uncomfortable economic picture, weak growth, persistent inflation and high government borrowing costs, just as Prime Minister Andy Burnham travels to New York attempting to promote the United Kingdom as a destination for business and investment.
While the OECD has raised its estimate for UK growth this year from 0.9 per cent to around 1.1 per cent, it has become gloomier about what follows, cutting its 2027 forecast by 0.1 percentage points.
The downgrade comes amid mounting pressure from the conflict in the Middle East and higher food and energy costs, while the OECD has warned governments that expensive borrowing makes controlling spending and improving public sector efficiency increasingly important.
The Bank of England, meanwhile, faces a difficult balancing act. The OECD expects it to cut rates next year as economic pressures ease, but financial markets have been pricing in the possibility of rate rises if the Iran conflict continues to drive inflation higher.
Governor Andrew Bailey warned last week that rates could have to rise if the conflict intensifies, with inflation now expected to reach 4 per cent.
For households and businesses, it means the UK could face the worst of both worlds, an economy struggling to generate meaningful growth while prices and borrowing costs remain painfully high.
The OECD expects UK inflation to remain above the Bank of England’s 2 per cent target during 2027, increasing its headline inflation forecast by 0.2 percentage points to 2.6 per cent.
That would mark a seventh consecutive year in which inflation has remained above the Bank’s target.
The economic warning could hardly come at a more awkward moment for Mr Burnham, who is using his visit to New York to promote Britain to international investors while his Government prepares for a Budget in which economists have warned ministers could face billions of pounds of tax rises or spending reductions.
