The UK is forecast to have the highest rate of inflation among the world’s richest economies this year, according to the Organisation for Economic Co-operation and Development (OECD).
In its latest outlook, the OECD raised its prediction for UK inflation to 3.5% across 2025, up from a previous estimate of 3.1%, citing rising food prices and higher business costs. Although the rate is expected to ease to 2.7% in 2026, it would still be the second highest in the G7.
At the same time, growth projections remain muted. The OECD has nudged up its forecast for UK GDP growth in 2025 to 1.4%, but expects the economy to slow to just 1% in 2026. The organisation warned this downturn would be driven by a “tighter fiscal stance” – pointing to likely tax rises or spending cuts – and ongoing trade frictions.
The figures come as Chancellor Rachel Reeves prepares her November Budget, in which she is under pressure to plug a potential £20bn-£30bn hole in the public finances while sticking to Labour’s self-imposed borrowing rules. Reeves said the OECD’s findings confirmed that “the British economy is stronger than forecast” but acknowledged “there is more to do to build an economy that works for working people”.
The Conservatives seized on the figures, with shadow chancellor Sir Mel Stride accusing Reeves of creating a “high tax, high inflation, low growth doom loop” and warning the UK was “teetering on the edge of stagflation”.
The OECD’s assessment also comes against a backdrop of stubbornly high domestic price pressures. UK inflation stood at 3.8% in August, driven by food costs and higher wage bills, and the Bank of England has warned it could climb to 4% before easing.
Globally, the OECD upgraded its forecast for growth this year to 3.2% from 2.9%, highlighting resilience in the US economy where investment in artificial intelligence has helped offset the drag from higher tariffs imposed by President Donald Trump.