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UK Forecast to Have Highest Inflation Among G7 Nations in 2025, OECD Says

The OECD raised its UK inflation forecast for 2025 to 3.5%, the highest among G7 advanced economies, citing rising food costs and the pass-through of higher employers' National Insurance contributions and minimum wage increases. UK growth was upgraded slightly to 1.4% but is expected to slow to 1% in 2026 as Chancellor Rachel Reeves prepares tax rises or spending cuts to meet her borrowing rules.

Stylised financial composition with rising price indicators, reflecting the OECD forecast of highest G7 inflation in the UK for 2025

Wire item•Economy•23 September 2025

The United Kingdom is forecast to see the highest rate of inflation among G7 advanced economies in 2025, according to the Organization for Economic Co-operation and Development (OECD), which raised its prediction to 3.5% from a previous estimate of 3.1%, BBC News reported on 23 September 2025. While inflation is expected to fall to 2.7% in 2026, that would still be the second highest in the G7.

Key forecasts

UK inflation 2025: 3.5% (raised from 3.1%) — highest in G7
UK inflation 2026: 2.7% — still second highest in G7
UK growth 2025: 1.4% (upgraded slightly)
UK growth 2026: 1.0% (unchanged from June forecast)
Global growth 2025: 3.2% (raised from 2.9%)
US growth 2025: 1.8% (raised from 1.6%)
US effective tariff rate: 19.5% at end of August — highest since 1933
UK monthly inflation (August): 3.8%, driven by food prices
Bank of England target: 2%; Bank predicts inflation hitting 4% before falling back

Stylised globe with trade route markers, reflecting the OECD warning that rising tariff barriers are dampening global growth in 2025 — Trade barriers rising: US effective tariff rate hits 19.5%, the highest since 1933

Why UK inflation is high

The OECD cited higher food costs as a factor, but analysts point to a broader pass-through of increased business costs. Many UK companies have complained about the rise in employers' National Insurance Contributions and a higher minimum wage, and analysts say these costs have been passed on to consumers. The Bank of England kept interest rates unchanged the previous week and warned the UK was not "out of the woods yet" on inflation.

Political reaction

Chancellor Rachel Reeves said the figures "confirm that the British economy is stronger than forecast — it has been the fastest growing of any G7 economy in the first half of the year." Shadow chancellor Sir Mel Stride countered that the OECD confirmed "what hard-working families already feel — under Labour, Britain is in a high tax, high inflation, low growth doom loop." Reeves is preparing November's Budget, with analysts suggesting she may need to raise £20–30 billion to meet her self-imposed borrowing rules.

Global context

The OECD raised its global growth forecast for 2025 to 3.2% from 2.9%, partly due to "front loading" of activity as firms rushed to complete deals before new US tariffs took effect. However, it warned growth would "soften noticeably" in the second half as the impact of higher tariffs is felt. OECD chief economist Alvaro Pereira told the BBC it was "absolutely essential" that countries lower trade barriers, noting that "hundreds of millions of people came out of poverty because of trade growth."

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