OECD warns Reeves of ‘headwind’ from higher taxes and spending restraint

A leading thinktank has warned Rachel Reeves that tight government spending and higher taxes will restrict consumer expenditure, despite it predicting the UK economy will grow at a faster pace than the economies of France, Germany and Italy next year.

- Phillip Inman

Analysts at the Organisation for Economic Cooperation and Development (OECD) said the government's continuing "fiscal consolidation" - meaning higher taxes and reduced public spending - would act as a "headwind" to the UK economy, with "past tax and spending adjustments weighing on household disposable income and slowing consumption".

The Paris-based organisation predicted the UK economy would expand by 1.2% next year, while the big three eurozone economies would each fail to reach 1%.

Offering a boost to the chancellor after she faced calls to resign following the budget, the UK's growth rate was upgraded from a previous forecast of 1% for next year. However, that represents a slowdown from the 1.4% growth predicted for this year, unchanged from the forecast three months ago.

The OECD said the US economy would grow by 1.7% next year, down from 2% this year and 2.4% in 2024, in a blow to Donald Trump's efforts to increase growth by restricting imports and reducing regulations on big industries.