UK Economy to Grow Faster This Year, Slows Next

The OECD upgraded the UK’s 2024 growth outlook to 1.1% thanks to stronger domestic demand, but forecasts a 1% slowdown in 2025 amid rising energy costs and geopolitical tensions. Inflation is expected to ease to 3.1% this year before easing more slowly to 2.6% next year. The revised outlook poses c…

By Felo News Desk · Published Wed, 23 Sep 2026 13:21:30 GMT

The Organisation for Economic Co‑operation and Development (OECD) has revised its forecast for the United Kingdom’s economic performance, raising the 2024 growth estimate to 1.1% from 0.9% while signalling a modest 1.0% expansion in 2025. The update follows a stronger than expected second‑quarter domestic demand and a modest easing of inflation, but it also reflects the impact of rising global energy prices and the fallout from geopolitical tensions in the Middle East.

2024 Growth Upgraded by OECD

In a recent briefing, OECD economists noted that the UK’s economy grew at a faster pace than anticipated in the first half of the year, driven largely by consumer spending and a rebound in business investment. As a result, the organisation lifted its 2024 growth forecast from 0.9% to 1.1%. This adjustment places the UK ahead of many of its G7 peers, who are expected to see slower growth.

Key drivers of the stronger performance include a robust housing market, increased retail sales, and a rebound in manufacturing output. The government’s fiscal stimulus measures, such as temporary VAT reductions on energy bills, have also helped to buoy consumer confidence.

2025 Forecast: A 1% Slowdown

Despite the upbeat outlook for 2024, the OECD warns that the economy will slow to a 1.0% growth rate in 2025. The forecast reflects several headwinds, including higher energy prices, supply chain disruptions, and the ongoing fallout from geopolitical conflicts that have disrupted global trade flows.

Energy costs are expected to remain a significant drag on the economy, as global oil and gas prices have risen sharply in recent months. This increase is projected to raise production costs for businesses and reduce disposable income for households, dampening demand for goods and services.

Inflation Trends and Policy Implications

Inflation is projected to average 3.1% in 2024, a decline from the previously estimated 3.6%. While this represents a modest improvement, the OECD predicts that inflation will fall more slowly in the coming years, reaching the Bank of England’s target of 2.6% only by 2025.

The slower easing of inflation poses challenges for monetary policy. The Bank of England may need to maintain higher interest rates for longer periods to keep inflation in check, potentially tightening borrowing conditions for businesses and households.

Impact on the Upcoming Budget and Defence Spending

Chancellor John Healey faces a difficult task in the next month’s Budget. With a slower growth outlook for 2025, the Treasury will need to identify new revenue sources or cut spending to meet fiscal targets.

One of the key priorities for the government is funding the plans of Manchester’s Mayor, Andy Burnham, which include investments in public transport, housing, and social care. The slower growth forecast could limit the amount of discretionary spending available for these initiatives.

Defence spending is also a critical concern. The UK’s defence budget is set to increase in response to rising security threats in the Middle East and elsewhere. The Treasury will need to balance these commitments against the backdrop of a weaker economic outlook.

Government Response and Economic Resilience

Despite the challenges, Treasury Minister Emma Reynolds has defended the country’s economic resilience. She highlighted that the UK recorded the fastest growth among G7 nations in the first half of the year and praised the effectiveness of cost‑of‑living measures, such as the temporary removal of VAT on energy bills.

Reynolds also emphasized the importance of maintaining investor confidence and supporting small and medium‑sized enterprises, which are vital to sustaining growth and employment.

Looking Ahead: Uncertainties and Opportunities

While the OECD’s forecasts provide a clearer picture of the near‑term economic trajectory, several uncertainties remain. Global commodity prices, the pace of recovery in international trade, and the evolution of geopolitical tensions will all influence the UK’s economic performance.

Policymakers will need to remain agile, adjusting fiscal and monetary tools to support growth while ensuring fiscal sustainability. The upcoming Budget will play a pivotal role in shaping the country’s economic path over the next few years.

In summary, the OECD’s updated outlook signals a more optimistic 2024 but cautions that 2025 will see a modest slowdown. The government’s response to these forecasts will be closely watched by investors, businesses, and households alike.

Key facts

OECD raises 2024 UK growth forecast to 1.1%
2025 growth projected at 1.0% due to energy and geopolitical pressures
Inflation expected to average 3.1% in 2024, easing to 2.6% by 2025
Budget will face pressure to fund Burnham’s plans and defence spending
Treasury highlights UK’s strong G7 performance and cost‑of‑living measures

Why it matters

The revised growth and inflation forecasts directly influence fiscal policy decisions, investment planning, and consumer confidence, shaping the economic landscape for businesses and households across the UK.