The Organisation for Economic Co-operation and Development (OECD) has upgraded its growth forecast for the UK, crediting the government’s £70 billion-a-year public spending package spearheaded by Chancellor Rachel Reeves. The OECD now expects the UK economy to grow by 0.9% in 2024 and 1.7% in 2025, significantly higher than its previous May forecasts of 0.4% and 1.0%.
However, the Paris-based organisation has cautioned that this growth is accompanied by rising public debt and persistent inflation. The UK’s upgrade contrasts with downgrades for France, Germany, and Italy, which are facing stagnation in the eurozone’s largest economies.
The OECD acknowledged that the UK’s growth is largely driven by an unprecedented increase in government expenditure, a strategy that has pushed the country’s debt to unsustainable levels. The debt-to-GDP ratio is projected to exceed 100% in the coming years. While the fiscal stimulus has provided a boost to growth, the OECD warned that it would keep inflation above the Bank of England’s 2% target for the next two years. This is primarily due to wage pressures and high public spending. Although interest rates are expected to fall to 3.5% by early 2026, monetary policy may remain tight for longer to address persistent price pressures.
Another concern raised by the OECD is the UK’s shrinking labour force, which has seen one of the largest post-pandemic contractions in workforce participation among OECD nations, second only to Costa Rica. The organisation called for reforms to the benefits system and increased childcare support to help encourage more people, particularly women, to return to work.
While Reeves welcomed the growth forecast upgrade, highlighting the UK as the fastest-growing European economy in the G7 over the next three years, the OECD emphasized the importance of balancing fiscal stimulus with sustainable debt management.
The Chancellor’s maiden Budget, funded by £40 billion in tax hikes and borrowing, also includes commitments to reform planning laws, improve childcare support, and overhaul welfare systems to boost productivity and living standards. However, critics have raised concerns about the long-term consequences of higher borrowing costs and structural deficits, which could potentially overshadow these short-term gains.
As the UK’s economy continues to recover, the OECD’s report serves as a reminder of the trade-offs between fiscal stimulus and long-term financial stability.
