OECD Predicts UK to Lead G7 in Inflation This Year
The Organisation for Economic Co-operation and Development (OECD) has forecasted that the United Kingdom will experience the highest inflation rate among G7 nations in 2025, projecting a 2.7% rise amid global economic slowdowns. This prediction comes as part of the OECD's latest interim economic outlook, highlighting persistent inflationary pressures in the UK despite broader trends of declining growth worldwide. The report underscores potential challenges for the UK's economic recovery and policy decisions ahead.
In a stark assessment of global economic trajectories, the Paris-based Organisation for Economic Co-operation and Development (OECD) released its interim economic outlook on September 25, 2025, painting a concerning picture for the United Kingdom. The report, which analyzes short-term prospects for its 38 member countries and key emerging economies, singles out the UK as poised to endure the highest inflation rate among the Group of Seven (G7) advanced economies this year. With inflation expected to average 2.7%, the UK outpaces projections for the United States (2.3%), Japan (2.2%), Germany (2.1%), France (1.9%), Italy (1.5%), and Canada (1.4%). This forecast arrives against a backdrop of decelerating global growth, with the OECD revising its worldwide GDP expansion estimate downward to 3.0% for 2025 from an earlier 3.2%.
The timeline of this development traces back to the OECD's previous outlook in May 2025, which had anticipated a more optimistic path for inflation control across major economies. However, intervening months have seen persistent supply chain disruptions, elevated energy prices, and lingering effects from geopolitical tensions, including the ongoing fallout from conflicts in Eastern Europe and the Middle East. The September 25 release marks a pivotal update, incorporating data up to mid-2025 and reflecting recent monetary policy shifts by central banks. For the UK specifically, the forecast adjustment stems from June's unexpectedly high consumer price index readings, which defied expectations of a steady decline following the Bank of England's aggressive interest rate hikes in 2024.
At the heart of the OECD's analysis is the UK's unique economic vulnerabilities. Unlike its G7 peers, Britain continues to grapple with the aftershocks of Brexit, which have compounded trade frictions and labor shortages. Historical context reveals that UK inflation peaked at over 11% in late 2022, driven by soaring energy costs and supply bottlenecks post-pandemic. While measures such as energy price caps and fiscal support mitigated some impacts, the economy has struggled to regain pre-Brexit momentum. The OECD notes that wage growth, averaging 5-6% annually, has outstripped productivity gains, fueling a wage-price spiral that central bankers have found challenging to tame.
Stakeholders have reacted with a mix of concern and resolve. "This forecast underscores the delicate balancing act facing policymakers," said OECD Chief Economist Álvaro Santos Pereira in a statement accompanying the report. "While global inflation is easing, the UK's trajectory suggests that more targeted interventions may be needed to anchor expectations and support sustainable growth." Pereira's comments highlight the organization's call for coordinated fiscal and monetary policies to navigate the slowdown.
From the UK government, Chancellor of the Exchequer Rachel Reeves responded during a press briefing in London on September 25. "We are committed to fiscal responsibility and will not shy away from tough decisions to bring inflation under control," Reeves stated. "The OECD's insights reinforce our strategy to invest in green technologies and skills training, which will boost productivity and ease price pressures in the long term." Her remarks come amid speculation of an autumn budget that could include tax adjustments to stimulate investment without exacerbating inflation.
Experts outside official circles have offered varied perspectives. Paul Dales, chief UK economist at Capital Economics, told reporters that the forecast "isn't surprising given the stickiness of services inflation, which remains above 5%". Dales added, "The Bank of England might need to maintain higher interest rates longer than anticipated, potentially delaying rate cuts until mid-2026." This view contrasts slightly with more optimistic analyses from the Institute for Fiscal Studies, which suggests that falling global commodity prices could provide relief sooner.
The implications of this forecast extend beyond immediate economic metrics. On a societal level, sustained high inflation erodes purchasing power, particularly for low-income households already strained by rising living costs. The Joseph Rowntree Foundation estimates that an additional 200,000 UK households could fall into poverty if inflation persists at these levels, exacerbating inequalities highlighted during the cost-of-living crisis of 2022-2023. Economically, businesses face higher borrowing costs, potentially stifling investment in key sectors like manufacturing and technology. The OECD warns that without decisive action, the UK's growth could lag further behind the G7 average of 1.7% for 2025, down from 1.8% previously forecasted.
Policy ramifications are equally significant. The Bank of England, which targets 2% inflation, may reconsider its rate-cutting timeline. Markets reacted swiftly to the OECD report, with the pound sterling dipping 0.5% against the euro on September 25, reflecting investor jitters. Internationally, the UK's position could influence G7 discussions at upcoming summits, where harmonizing inflation-fighting strategies will be paramount. The report also touches on broader global risks, such as potential escalations in trade tensions between the US and China, which could further disrupt supply chains and inflate costs.
Looking ahead, the OECD emphasizes the need for structural reforms. In the UK, this might involve enhancing trade ties with non-EU partners and investing in renewable energy to reduce dependence on volatile fossil fuels. As Pereira noted, "Resilience will come from diversification and innovation, not isolation." For ordinary Britons, the forecast serves as a reminder of the interconnectedness of global economics, where domestic policies must align with international trends to foster stability.
This development arrives at a time when public confidence in economic management is fragile. Opinion polls from YouGov indicate that 60% of UK adults view inflation as their top concern, up from 45% a year ago. As the government navigates these choppy waters, the OECD's outlook provides a sobering benchmark against which progress will be measured. Whether the UK can defy this prediction through agile policymaking remains to be seen, but the stakes—for growth, equity, and international standing—are undeniably high.
In summary, while the global economy inches toward recovery, the UK's inflationary outlier status poses unique challenges. The coming months will test the efficacy of current strategies, with potential ripple effects across Europe and beyond.