Gross domestic product (GDP) growth in the UK is projected to slow next year despite a better-than-expected 2026, according to the Organisation for Economic Co-Operation and Development (OECD).
Expected economic expansion for 2026 has jumped to 1.1 per cent, up from a previous estimate of 0.9 per cent issued in June, thanks to “solid” domestic demand during the second quarter.
Yet the upgraded figure still falls short of the 1.4 per cent growth recorded last year, and the outlook for 2027 poses a setback for Prime Minister Andy Burnham’s growth agenda.
The Paris-based organisation now anticipates the pace of expansion will dip to just one per cent next year, down from the 1.1 per cent it had forecast in its June assessment.
The OECD predicts GDP growth will slow down the UK economy next year
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A broader global slowdown, elevated energy costs and a “higher policy rate” weighing on European activity were cited as factors likely to constrain momentum heading into next year.
On inflation, consumer prices are projected to rise 3.1 per cent this year, well below the 3.6 per cent the OECD previously anticipated, though still the second-fastest rate among G7 nations.
Energy costs fell back during the summer months when a US-Iran ceasefire held, but surged again after that agreement fell apart in July.
Last month, inflation climbed to a five-month high of 3.1 per cent and the Bank of England warned last week that it expects the rate to reach 3.75 per cent by December before peaking at roughly four per cent in early 2027.
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As a result, the OECD now forecasts inflation of 2.6 per cent in 2027, up from 2.4 per cent just three months ago.
The prolonged conflict in the Middle East remains the principal driver of near-term price pressures, with energy costs swinging sharply higher since the collapse of the US-Iran ceasefire in July.
The OECD noted that these rising energy prices are expected to fuel further inflation in the short term before gradually subsiding next year.
Domestically, the stronger-than-expected 2026 performance was underpinned by robust household spending, with the organisation highlighting that consumers are likely to “be supported by newly announced government support measures”, including the scrapping of VAT on household energy bills from October.
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The global picture painted by the OECD was one of resilience despite the war in Iran, with the body concluding that growth had held up across “many countries” throughout 2026.
Treasury minister Emma Reynolds said: “Despite unprecedented pressures and conflict in both the Middle East and in Europe, the UK economy is showing strong resilience.
“We will face these challenges together and we are already giving families space to breathe. We had the fastest growth in the G7 in the first half of the year and we are starting the big, long-term changes needed to create good jobs and growth in every postcode.”
The organisation also projected that G20 inflation will reach approximately 3.6 per cent next year, running half a percentage point above its earlier forecast.