UK growth downgraded as global economy dragged by Trump trade wars

UK economic forecasts have been downgraded for the next two years as trade tensions linked to US President Donald Trump’s tariff plans hit the global economy, according to a new report.

The Organisation of Economic Cooperation and Development (OECD) has also cut its projections for global growth in 2025 and 2026.

Economists from the influential organisation cautioned that the global outlook is “becoming increasingly challenging”.

In the UK, the economy is expected to grow by 1.3% this year, with the OECD cutting its previous forecast of 1.4%.

‘Trade tensions’

It also reduced its prediction for 2026 from 1.2% in its March report to 1%, blaming the cuts to forecasts on “heightened trade tensions, tighter financial conditions, and elevated uncertainty”.

The report added: “Inflationary pressures will initially linger, due to higher import prices and robust wage growth in 2025, but subside over 2026, as spare capacity emerges and the labour market loosens.”

The OECD also highlighted that substantial debt payments will continue to weigh on the UK’s state finances and “push up public debt”.

It comes despite the Chancellor Rachel Reeves’ pledge to reduce the debt burden.

The UK economy grew by 0.7% over the first quarter of the year but the OECD highlighted that “momentum in weakening” as business sentiment deteriorates.

Businesses have been affected by heightened uncertainty linked to US tariff plans, which were initially launched at the start of April but have seen certain policies change over the past two months.

The OECD said on Tuesday that it expects global economic growth to slow to 2.9% this year and in 2026 from 3.3% in 2024, on the assumption “that tariff rates as of mid-May are sustained despite ongoing legal challenges”.

It highlighted that this slowdown is set to be concentrated in the United States, Canada, Mexico and China.