UK forecast to have highest inflation among richest nations
The Organization for Economic Cooperation and Development (OECD) recently reported that the UK is expected to have the highest inflation rate among the G7 countries this year. The forecast comes as Chancellor Rachel Reeves prepares for a November Budget, where she's likely to face tough decisions on tax and spending to meet her government's borrowing rules.
Key Findings and Economic Outlook
-
Inflation: The OECD raised its forecast for UK inflation to 3.5% in 2025, a slight increase from its previous prediction of 3.2%. This is the highest rate among G7 economies. The current monthly UK inflation rate is 3.8%, well above the Bank of England's 2% target. Rising food prices have been cited as a key factor.
-
Economic Growth: While the OECD slightly raised its UK growth forecast for this year to 1.4%, it expects a slowdown to 1% next year. This slowdown is attributed to a "tighter fiscal position," which could mean higher taxes or lower government spending, as well as higher trade prices and uncertainty.
-
Unemployment: The OECD expects the UK's unemployment rate to decline to 2.2% this year, but it will be the second-highest rate in the G7 by 2026.
-
Global Context: The OECD also raised its forecast for global economic growth in 2025, but warned that growth would "soften noticeably" in the second half of the year. This is partly due to the effects of higher tariffs imposed by the US, which are expected to dampen global trade and investment.
Political Reaction and Budget Speculation
In response to the report, Chancellor Rachel Reeves acknowledged that the British economy "has risen faster than anticipated" but stressed that there's "more to do" for working people.
Meanwhile, speculation about potential tax hikes is growing ahead of the November Budget. Some analysts predict the chancellor may need to raise a significant amount of money to comply with her borrowing limits. The Labour government has pledged not to increase income tax, VAT, or National Insurance for "working people," but some analysts have suggested a reduction in employee National Insurance funded by an increase in income tax.
The UK economy's growth forecast has been slightly increased, but inflation remains a significant concern, with the UK projected to have the highest rate among G7 countries.
