UK and global growth forecasts cut amid warnings over Trump’s trade war

The UK’s economic forecast has been slashed amid downgrades for the wider global outlook as experts warned over a hit to world growth and rising inflation sparked by the mounting trade war.

The Organisation for Economic Co-operation and Development (OECD) cut its predictions for UK growth to 1.4% in 2025 and 1.2% in 2026, down from 1.7% and 1.3% in its previous predictions.

For the world economy, the OECD said growth would slow from 3.2% in 2024 to 3.1% in 2025 and 3% in 2026, down from 3.3% previously forecast for both years, largely as a result of trade tensions sparked by US President Donald Trump.

Canada and Mexico have seen the biggest blow to their growth forecasts after Mr Trump’s move to impose harsh tariffs on imports from the countries, which were the first to be penalised, alongside China.

But the US is also in line for economic woes from Mr Trump’s trade policies, with the OECD trimming its growth forecast for the world’s biggest economy to 2.2% in 2025 and 1.6% in 2026 – a marked downgrade from the 2.4% and 2.1% previously pencilled in.

Warning

In a stark warning, the OECD said in its interim economic outlook report that “consumers face much of the burden of higher tariffs” as it cautioned over a “significant” impact on living standards.

The OECD said: “Further fragmentation of the global economy is a key concern.

“Higher and broader increases in trade barriers would hit growth around the world and add to inflation.

“Higher-than-expected inflation would prompt more restrictive monetary policy and could give rise to disruptive repricing in financial markets.”

The report shows that inflation in the G20 group of countries will be sent rising to 3.8% this year and 3.2% next year, up from the 3.5% and 2.9% the OECD predicted in December, with interest rates likely to remain higher for longer as a result.

In the UK, it held its predictions for inflation at 2.7% this year and 2.3% in 2026.

Chancellor Rachel Reeves said: “This report shows the world is changing, and increased global headwinds such as trade uncertainty are being felt across the board.”

She added: “A changing world means Britain must change too, and we are delivering a new era of stability, security and renewal, to protect working people and keep our country safe.”

She said this would mean Britain can “better respond to global uncertainty”.

Trump policies

Earlier this month, Mr Trump’s new policies came into effect, seeing imports from Canada and Mexico taxed at 25%, with Canadian energy products receiving 10% tariffs.

In addition, the 10% tariff that Mr Trump placed on Chinese imports in February doubled to 20%.

He has also pledged hefty tariffs on Europe and, while the UK has so far avoided harsh penalties, it has also been caught by last week’s sweeping 25% tariffs on steel and aluminium entering America.

Countries have been quick to retaliate and financial markets were sent reeling last week over fears it could spark a recession in the US.

For Canada, the OECD has predicted growth more than halving to 0.7% this year and next, down from the 2% it had predicted for both years.

Mexico will be sent into a recession, with output shrinking by 1.3% in 2025 and 0.6% in 2026, against forecasts in December for growth of 1.2% and 1.6% respectively.

Growth in China is projected to slow from 4.8% this year to 4.4% in 2026.

Europe will also be severely impacted by the trade war, with sharp downgrades across the board and the euro area as a whole now set to see growth of just 1% in 2025, down from 1.3% previously forecast, the OECD said.

The OECD said: “Governments need to find ways of addressing their concerns together within the global trading system to avoid a significant ratcheting up of retaliatory trade barriers between countries.

“As already highlighted, a broad-based further increase in trade restrictions would have significant negative impacts on living standards.”