OECD Sees UK Growth Slowing to 0.9 Percent in 2026 Before a 1.1 Percent Recovery
The OECD projects that United Kingdom economic growth will slow temporarily to 0.9 percent in 2026, down from 1.4 percent in 2025, before picking up to 1.1 percent in 2027, according to its latest Economic Survey of the United Kingdom published on 15 July. Even with that rebound, growth in 2027 would remain below the 1.4 percent recorded in 2025. The survey warns that weak productivity growth, high and volatile energy prices, rising fiscal pressures and large regional disparities continue to weigh on living standards.
On inflation, the OECD expects the rate to rise to 3.7 percent this year from 3.4 percent in 2025, before easing to 2.4 percent in 2027. The unemployment rate is projected to reach 5.5 percent in 2026 before edging down to 5.3 percent in 2027, with core inflation cooling as labour-market slack rises. The OECD expects the Bank of England to keep easing policy, looking through the energy shock in 2026 and moving to a neutral stance in 2027. It described the government’s pro-growth agenda as broadly appropriate but said delivering stronger and more inclusive growth will require sustained structural reforms alongside sound macroeconomic and fiscal policies.
The numbers frame a subdued path. On our reading, the 2026 forecast marks a 0.5 percentage point slowdown from 2025, with the projected 3.7 percent inflation running about 1.7 percentage points above the Bank of England’s 2 percent target, close to double the goal, before the survey sees it converging back toward target by 2027. The trajectory is consistent with the modest 0.1 percent monthly rise in UK output in May that we reported earlier this week.
The OECD placed fiscal discipline at the core of its recommendations, citing high public debt, high interest costs and mounting spending pressures that limit fiscal space. It called for reinforcing the fiscal framework, improving tax efficiency and reallocating spending toward productivity-enhancing public investment, and flagged pension reform, including a review of state pension indexation, to contain long-term fiscal risks. It also urged faster investment in electricity networks and better-aligned energy price signals to strengthen energy security, and a long-term regional strategy to close productivity gaps between leading and lagging areas.
For the Gulf, the survey is a read on a key partner. The United Kingdom is a significant destination for Gulf sovereign and private capital and a counterpart in ongoing trade discussions, so an outlook of subdued growth, above-target inflation and constrained fiscal space shapes the backdrop for sterling assets and UK-facing investment strategies across the region.
Why it matters: The survey crystallises a structural challenge, lifting productivity and rebuilding fiscal buffers without choking a fragile recovery, and signals that above-target inflation and tight public finances will persist into 2026. For the Gulf, the assessment informs how regional investors and funds position around UK assets and the pace of any UK-Gulf commercial deepening.
Outlook: UK June CPI is due 22 July, the next test of the OECD’s 3.7 percent inflation call. Watch the government’s response on fiscal and pension reform and the trajectory of energy-network investment the survey flagged.
Sources: OECD.
