Spending cuts and tax rises to serve as headwinds to economy

03 Dec 2025

A report published by the Organisation for Economic Co-operation and Development (OECD) has suggested that tax rises and spending cuts announced by Chancellor Rachel Reeves will serve as headwinds to the UK economy.

The OECD predicts that the UK economy will grow by 1.4% this year, slowing to 1.2% in 2026 and reaching 1.3% in 2027. Its latest report comes less than a week after the Autumn Budget, which announced tax-raising measures worth up to £26 billion.

According to the OECD, fiscal consolidation 'will be a headwind to the economy, with past tax and spending adjustments weighing on household disposable income and slowing consumption'.

The think tank also warned that sluggish productivity will hinder the UK economy, acting as a 'drag'. Turning to inflation, the OECD cautioned that the UK inflation rate will be the highest in the G7.

Commenting on the OECD's report, the Chancellor said: 'Last week, my Budget cut waiting lists, cut borrowing and debt and cut the cost of living. Less than a week later, the OECD has upgraded our growth and cut its forecast for inflation next year.

'The choices that I made at the Budget are expected to cut inflation by 0.4 percentage points, helping cut the cost of living for households and costs for our businesses.'