UK growth 'to slow next year after stronger-than-expected 2026'

UK economic growth is expected to slow next year – despite a stronger-than-expected performance in 2026, according to new forecasts.

The Organisation for Economic Co-operation and Development says UK inflation will also come in below previous forecasts this year, but will then take longer than expected to fall back to target levels.

The update has been described as a blow to Prime Minister Andy Burnham’s economic ambitions, though Labour says “the UK economy is showing strong resilience”.

The warnings came as the Organisation for Economic Co-operation and Development said recent rises in energy prices linked to the prolonged Iran war are likely to cause more inflation in the near term, before gradually easing next year.

In the UK, the economy is set to have grown by 1.1 per cent for this year.

The figure represents an upgrade from a previous estimate of 0.9 per cent growth from June, amid a boost from “solid” domestic demand in the second quarter of the year.

The report also indicated consumers are likely to “be supported by newly announced Government measures”, such as the removal of VAT from household energy bills from October.

Nevertheless, growth is still expected to be weaker than the 1.4 per cent reported last year, and is then likely to dip slightly next year.

Meanwhile, UK consumer price inflation is on track to hit 3.1 per cent for this year, significantly lower than the previous prediction of 3.6 per cent but still the second-fastest increase in the G7.

It comes after energy prices eased back over the summer amid the US-Iran ceasefire period, but these have swung notably higher after the ceasefire collapsed in July.

Inflation lifted to a five-month high of 3.1 per cent last month, with the Bank of England predicting this will lift to 3.75 per cent by the end of this year and peak at around four per cent in early 2027.

The Organisation for Economic Co-operation and Development said it now expects inflation to slow to 2.6 per cent next year, pointing to a shallower drop than previously expected, having forecast 2.4 per cent in June.

It predicted inflation across the G20 will hit around 3.6 per cent next year, 0.5 percentage points ahead of its previous forecast.

The organisation indicated interest rates “are expected to remain unchanged” in the UK in the near term, despite the upgrade in inflation predictions for next year.

The Organisation for Economic Co-operation and Development highlighted the Bank of England has kept interest rates at a higher level than many other economies.

Economists nevertheless widely expect the central bank to increase rates later this year or at the start of next year.

Treasury minister Emma Reynolds said: “Despite unprecedented pressures and conflict in both the Middle East and 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 Conservatives said the UK “can and should aspire to do much better.”

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