The OECD has significantly upgraded its growth forecast for the UK, crediting Rachel Reeves’s £70 billion-a-year public spending package.

The UK economy is now expected to grow by 0.9% in 2024 and 1.7% in 2025, up from May forecasts of 0.4% and 1.0%. However, the Paris-based organisation cautioned that this growth comes at the expense of rising public debt and persistent inflation.

The UK’s economic upgrade contrasts sharply with downgrades for France, Germany, and Italy, highlighting stagnation in the eurozone’s largest economies. However, the OECD noted that Britain’s growth is fuelled by an unprecedented increase in government expenditure, pushing debt to an unsustainable level projected to exceed 100% of GDP.

The OECD warned that this fiscal stimulus would keep inflation above the Bank of England’s 2% target for the next two years, driven by wage pressures and elevated public spending. Despite expectations that interest rates will fall to 3.5% by early 2026, monetary policy could remain tighter for longer to counteract persistent price pressures.

The organisation also highlighted the UK’s shrinking labour force as a critical challenge. Britain has seen one of the largest post-pandemic contractions in workforce participation among OECD nations, second only to Costa Rica. The OECD stressed the need for benefit reforms and increased childcare support to encourage more people, particularly women, to return to work.

While Reeves welcomed the growth upgrade, positioning the UK as the fastest-growing European economy in the G7 over the next three years, the OECD urged policymakers to balance fiscal stimulus with sustainable debt management.

The Chancellor’s maiden Budget, funded through £40 billion in tax hikes and borrowing, also included a commitment to reforming planning laws, childcare support, and welfare systems to boost productivity and living standards. However, critics warn that the long-term consequences of higher borrowing costs and structural deficits could overshadow these short-term gains.

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UK growth forecast upgraded after Reeves’s £70bn spending boost