The OECD has said the UK economic outlook has improved, with inflation running lower than expected and new government support likely to boost growth. The Paris-based think tank cut its inflation forecast for this year from 3.7% to 3.1% after prices rose less dramatically than expected. It now expects UK economic growth of 1.1% for 2026, up from the 0.9% it had forecast in June and 0.7% in March, with consumption supported by newly announced government measures.
In response, the chief secretary to the Treasury, Emma Reynolds, said: "Despite unprecedented pressures and conflict in both the Middle East and in Europe, the UK economy is showing strong resilience. We will face these challenges together and we are already giving families space to breathe. We had the fastest growth in the G7 in the first half of the year and we are starting the big, long-term changes needed to create good jobs and growth in every postcode."
Andy Burnham, who became prime minister on 20 July, announced a cut in VAT on electricity bills as one of his first policy measures. He has suggested there may be more measures to give consumers "breathing space" in next month's budget. Burnham and his chancellor, John Healey, have seen UK borrowing costs rise sharply amid turmoil in global bond markets as ongoing conflicts have disrupted oil supplies and driven up inflation.
The head of the International Monetary Fund has warned that advanced economies need to act to reduce borrowing and bring down debt levels at a time of surging government borrowing costs. Kristalina Georgieva told the BBC that global economic shocks had been "pushing debt levels up like a staircase not to heaven" despite governments taking "no action to contain that service cost. [Itâs] time to take that action," Georgieva said, adding that courage was needed by politicians to take the necessary steps.
