UK’s economic recovery has been dealt a fresh blow as the Organization for Economic Co-operation and Development (OECD) slashes its growth forecast, citing the impact of a deepening trade war triggered by President Donald Trump’s sweeping global tariffs.
Chancellor Rachel Reeves’ ambition to revitalize the UK economy now faces mounting challenges as inflation fears and global instability intensify.
The OECD revised its UK growth projections downward, forecasting an expansion of just 1.4% in 2025 and 1.2% in 2026 — down from previous estimates of 1.7% and 1.3%, respectively. The global economy is also expected to slow, with the OECD now projecting a decline from 3.2% in 2024 to 3.1% in 2025 and 3% in 2026, attributing much of the downturn to escalating trade tensions under Trump’s administration.
Earlier this month, Trump’s tariff policy came into effect, imposing a 25% duty on imports from Canada and Mexico, while Canadian energy products now face a 10% tariff. Although the UK has largely avoided the most punitive measures, it has been hit by a 25% tariff on steel and aluminum exports to the United States.
Meanwhile, tensions with China have escalated further. Trump’s initial 10% tariff on Chinese imports, introduced in February, has now doubled to 20%, fueling fears of an all-out trade war. Global financial markets have reacted sharply, with investors concerned that retaliatory measures could push the U.S. economy toward recession.
Reeves acknowledged the economic turbulence, stating that the “world is changing, and increased global headwinds such as trade uncertainty are being felt across the board.”
“A changing world means Britain must change too, and we are delivering a new era of stability, security and renewal, to protect working people and keep our country safe.”
Rachel Reeves
The chancellor emphasized that this approach would allow Britain to “better respond to global uncertainty.” However, with the UK’s economy already struggling, she faces difficult choices ahead of next week’s budget announcement.
Tough Choices Loom for Reeves
Reeves is under pressure to address the UK’s fragile public finances, with think tank Resolution Foundation warning that she may need to raise taxes to cover shortfalls. To balance the books, she is expected to introduce a series of public spending cuts, including reductions in welfare programs.
While Canada and Mexico have borne the brunt of Trump’s tariffs, the U.S. economy itself is not immune. The OECD has cut its growth forecast for the U.S. to 2.2% in 2025 and 1.6% in 2026, down from previous estimates of 2.4% and 2.1%.
The OECD cautioned that “consumers face much of the burden of higher tariffs,” highlighting the significant impact on living standards. The latest projections indicate that inflation within the G20 nations will climb to 3.8% this year and 3.2% in 2025, higher than the December forecast of 3.5% and 2.9%. Interest rates are expected to remain high for a prolonged period in response to rising inflationary pressures.
For the UK, inflation is projected to hold at 2.7% in 2025 and 2.3% in 2026, maintaining the OECD’s earlier forecasts.
The OECD has sounded the alarm over the risk of growing economic fragmentation, warning that “higher and broader increases in trade barriers would hit growth around the world and add to inflation.” The report stresses that escalating trade restrictions could disrupt financial markets, prompting a more restrictive monetary policy response from central banks.
Canada’s growth forecast has been slashed to just 0.7% for both 2025 and 2026, down from the previously estimated 2%. Mexico is projected to slip into recession, with its economy contracting by 1.3% in 2025 and 0.6% in 2026—an alarming downgrade from previous expectations of 1.2% and 1.6% growth.
China’s economy is also set to slow, with growth predicted to fall from 4.8% this year to 4.4% by 2026. Meanwhile, Europe is bracing for the fallout, with the eurozone’s growth now expected to reach just 1% in 2025, down from the 1.3% forecast previously.
As economic tensions escalate, the OECD urged world leaders to seek cooperative solutions, stating that “governments need to find ways of addressing their concerns together within the global trading system to avoid a significant ratcheting up of retaliatory trade barriers between countries.”
READ ALSO: Lord Boam Quiz Finalists Visit Parliament in Educational Tour
