A global think tank has warned the Chancellor that her tax and spend policies will curb consumer spending and restrict growth, despite forecasting the UK economy to outperform France, Germany and Italy next year.
The Organisation for Economic Cooperation and Development (OECD) offered under-pressure Rachel Reeves some consolation by upgrading the growth forecast from 1% to 1.2% against just 1% for the three eurozone economies.
However, the UK figure is lower than the 1.4% predicted earlier this year. UK inflation will also remain among the highest of the G7 advanced economies, although it is expected to ease.
The Paris-based organisation said the higher taxes and public spending commitments will act as a “headwind” to the UK economy.
Ms Reeves announced £26bn worth of tax rises in last week’s Budget, with more people dragged into paying higher taxes.
The report predicts two more reductions in interest rates, from the current 4% to 3.5% in the second quarter of 2026, but sees no further cuts next year.
The chancellor said her actions would wipe 0.4 percentage points off inflation.
“Last week, my Budget cut waiting lists, cut borrowing and debt, and cut the cost of living. Less than a week later, the OECD has upgraded our growth and cut its forecast for inflation next year.
“The choices that I made at the Budget are expected to cut inflation by 0.4 percentage points, helping cut the cost of living for households and costs for our businesses.
“Alongside our plans to deliver growth, by investing in this country’s infrastructure, attracting major private investment, and pushing through bold planning reforms, we’ll deliver on our number one mission to put more money in people’s pockets.”
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