Inflation is expected to average 3.1% this year and ease to 2.6% in 2027, remaining above the 2% target while the energy shock continues to drag on prospects.
On the global leaderboard, the UK lands mid-pack in the G7 over the next two years, trailing the US, Germany and Canada on average, with global AI investment helping blunt the hit from conflict in the Middle East.
The OECD urged advanced economies to rein in and reallocate spending, raise public sector efficiency and strengthen revenues to keep debt sustainable over time. As it put it, "Advanced economies facing rising borrowing costs need to address market concerns."
According to the OECD, the Bank of England can keep inflation in check by holding rates steady until next year before trimming them by a quarter point to 3.5%. It also said central banks must ensure "inflation expectations stay well-anchored," adding the BOE could achieve this by keeping rates at 3.75% until mid-2027 and then lowering them.
Market pressure points are clear. Britain's 30-year bond yields top every other G7 country's, and national debt sits at 93.8% of GDP, the most since the 1960s. Economists reckon the £23.6 billion ($31.5 billion) headroom under the UK's fiscal rules has been halved by higher borrowing costs and inflation. The OECD said the government must remain vigilant to market risks that could push financing costs higher.
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Caution is building ahead of the Oct. 28 budget, and Chancellor of the Exchequer John Healey is expected to raise taxes to repair public finances.
Figures published on Tuesday indicated borrowing was outpacing the target, squeezing the scope for budget giveaways. Even so, momentum remains: the Bank of England now anticipates third-quarter growth of 0.4% following an unexpectedly strong July, and GDP rose 1% in the first half. "Despite unprecedented pressures and conflict in both the Middle East and in Europe, the UK economy is showing strong resilience," said Chief Secretary to the Treasury Emma Reynolds.
Burnham has already removed value-added tax from household electricity bills and reduced bus fares by a third. The OECD said those moves will support consumption and growth, but should be "well-targeted on the households most in need" and come with a clear expiry date.
For your wallet, the takeaway is simple: slower growth, higher borrowing costs and a thinner fiscal buffer can spill over into public services and the cost of credit. Keep an eye on the Oct. 28 budget - how much the government spends and borrows can ripple through to your bills and your cash flow.
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