There was fresh woe for Rachel Reeves today as another influential body downgraded Britain’s growth forecasts.
The OECD has trimmed expectations for his year and next as it warned of looming price rises from Donald Trump’s trade war.
UK plc is now expected to expand by 1.4 per cent in 2025 rather than the 1.7 per cent it anticipated in December. For 2026 1.2 per cent has been pencilled in instead of 1.3 per cent.
The estimates are another headache for the Chancellor as she struggles to balance the books at the Spring Statement later this month.
The OBR watchdog is thought to have followed the Bank of England in lowering growth hopes, leaving Ms Reeves trying to fill a £15billion black hole.
Labour’s massive Budget tax raid has been partly blamed for the slowdown, which looks to have begun before Mr Trump’s return to power.
But responding to the OECD interim Economic Outlook report Ms Reeves pointed to ‘global headwinds’.
The international think-tank said it sees global growth slowing from 3.2 per cent in 2024 to 3.1 per cent this year and 3 per cent.
Previously it suggested the level would be 3.3 per cent this year and next.
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 not spared from pain, with the OECD cutting its growth forecast to 2.2 per cent in 2025 and 1.6 per cent in 2026. That is significantly down from 2.4 per cent and 2.1 per cent respectively.
The OECD said ‘consumers face much of the burden of higher tariffs’ as it cautioned over a ‘significant’ impact on living standards.
‘Further fragmentation of the global economy is a key concern,’ the report said.
‘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.’
Inflation in the G20 group of countries is predicted to hit 3.8 per cent this year and 3.2 per next year – up from 3.5 per cent and 2.9 per cent.
In a small bright spot, the UK figures were unchanged at 2.7 per cent this year and 2.3 per cent in 2026.
Ms 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’.
Earlier this month, Mr Trump’s new policies came into effect, seeing imports from Canada and Mexico taxed at 25 per cent, with Canadian energy products receiving 10 per cent tariffs.
In addition, the 10 per cent tariff that Mr Trump placed on Chinese imports in February doubled to 20 per cent.
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 per cent 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 per cent this year and next, down from the 2 per cent it had predicted for both years.
Mexico will be sent into a recession, with output shrinking by 1.3 per cent in 2025 and 0.6 per cent in 2026, against forecasts in December for growth of 1.2 per cent and 1.6 per cent respectively.
Growth in China is projected to slow from 4.8 per cent this year to 4.4 per cent 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 per cent in 2025, down from 1.3 per cent 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.’