The United Kingdom is projected to experience the highest inflation among G7 nations this year, according to the Organisation for Economic Co-operation and Development (OECD). Amid a resurgence in food prices and the impact of the UK government’s £25bn-a-year increase in employer national insurance contributions (NICs), the OECD forecasts UK inflation to average 3.5% in 2025. This figure significantly surpasses even the US's projected 2.7%, despite the US implementing the largest tariffs since the 1930s under former President Donald Trump, a policy generally expected to push up prices.

Looking ahead, the OECD expects UK inflation to slow to 2.7% in 2026, which would still remain above the Bank of England’s 2% target. The Bank of England has previously cited regulated prices, such as water and energy bills, along with the NICs rise, as contributing factors to the sustained above-target inflation. The headline Consumer Price Index (CPI) stood at 3.8% in August, unchanged from July, with food inflation nudging over 5% again, highlighting persistent cost-of-living pressures.

Beyond inflation, the OECD's report also suggests that Britain's "tighter fiscal stance"—characterized by higher taxes and reduced government spending—is expected to temper economic growth over the next twelve months. The organization predicted a modestly stronger GDP growth for the UK this year at 1.4%, an increase from its previous forecast of 1.3%. However, the projection for 2026 remains unchanged at a relatively sluggish 1%, a forecast that presents challenges for Shadow Chancellor Rachel Reeves as Labour aims to stimulate growth ahead of her anticipated budget on November 26, where she is expected to propose tax increases.

Comparing the UK's economic performance within the G7, if the OECD's growth forecasts hold, the UK’s GDP growth rate for 2026 would place it in the middle of the pack. It would trail behind the US (1.5%), Germany (1.1%), and Canada (1.2%) but surpass Italy (0.6%), Japan (0.5%), and France (0.9%). For the current year, the UK is expected to be the second fastest-growing G7 country, just behind the US, growing by 0.7% in the first quarter and 0.3% in the second quarter of the year.

Political figures have offered varied responses to the OECD's findings. Rachel Reeves acknowledged that the figures "confirm that the British economy is stronger than forecast" and was the fastest-growing G7 economy in the first half of the year, while emphasizing the need to build an economy that works for working people. Conversely, Conservative party leader Kemi Badenoch criticized the report as a "damning verdict on Starmer’s weak economic management," attributing shrinking growth and high G7 inflation to Labour’s tax hikes. Shadow Chancellor Sir Mel Stride echoed this sentiment, describing Britain as being in a "high tax, high inflation, low growth doom loop" under Labour, cautioning against further tax rises.

Globally, the OECD's interim economic outlook indicates that the economic impact of Trump's tariffs has been slower than anticipated but is expected to significantly affect global growth in the coming months. The organization upgraded its projection for global GDP this year to 3.2% (from 2.9%), noting that "global growth was more resilient than anticipated in the first half of 2025," particularly in emerging-market economies. This resilience was partly supported by "front-loading" of industrial production and trade in anticipation of higher tariffs. However, with slowing labor markets in several countries and the waning effect of front-loaded exports, the OECD anticipates weaker global growth of 2.9% in 2026, consistent with its June forecast.

Regarding the US, Trump's trade policy has led to an estimated average tariff of 19.5% on imports by the end of last month—the highest since 1933. As a consequence, and also due to slower net immigration, the OECD projects US GDP growth to decelerate from 2.8% last year to 1.8% this year and 1.5% in 2026, as the full effects of higher tariff rates are yet to be completely absorbed by the US economy.

Separately, a survey of private sector businesses in the UK, the S&P Global flash composite purchasing managers’ index (PMI), showed a marked easing in September to 51.0 from August’s 12-month high of 53.5. While a score above 50 still indicates growth, the slowdown reflects rising input costs and persistent consumer reluctance to spend, with the prospect of further tax rises in November's budget dampening business sentiment. These bleak figures suggest the UK faces a risk of 'stagflation,' a scenario where prices surge alongside a stagnating economy, further complicated by higher business costs leading to subdued demand and potential job cuts.