Paris, France. Britain must maintain budget discipline, address high pension spending and tackle rising energy prices to accelerate economic growth, the OECD said on Wednesday.
The organisation said the UK economy had stabilised after a series of shocks, including Brexit, but warned that weak activity and the evolving Middle East conflict were testing its resilience.
Economic outlook
The Organisation for Economic Cooperation and Development said high and volatile energy prices, rising fiscal pressures, weak productivity growth and large regional disparities continued to weigh on economic performance and living standards.
The OECD forecast that Britain’s economy would grow by 0.9% this year and 1.1% in 2027. Its projections were slightly below the International Monetary Fund’s forecasts published last week of 1% growth this year and 1.3% next year.
Fiscal pressures
The report underscored the challenges facing Andy Burnham, who is set to become prime minister next week. The former Manchester mayor, who is expected to replace Keir Starmer, has pledged to adhere to the government’s fiscal rules.
Some investors have expressed concern that Burnham could raise public spending under pressure from within the centre-left Labour Party.
“Fiscal discipline remains essential, building on recent improvements to the fiscal framework,” the OECD said, citing high public debt, elevated interest payments and rising spending pressures, particularly in health and social care.
Energy and investment
Finance minister Rachel Reeves said in response to the report that Britain was on course for the fastest growth among Europe’s large, wealthy economies, with artificial intelligence and stronger ties with the European Union supporting the economy.
The OECD said Britain should increase investment in electrification to reduce its reliance on gas imports, which rose sharply in price this year because of the Iran war.
It said risks remained weighted to the downside, particularly if a prolonged Middle East conflict further raised energy prices or global trade fragmentation intensified.