UK facing highest inflation among G7

The United Kingdom will face the highest inflation rate among G7 nations this year, piling more pressure on household budgets, according to a warning from the Paris-based Organisation for Economic Co-operation and Development, or OECD.

Alongside slowing growth, the OECD projects UK inflation will reach 3.5 percent by year-end — up from 2.5 percent last year and significantly above the Bank of England's target of 2 percent.

While the OECD expects inflation to slow to 2.7 percent next year, which would still be above the Bank of England's target, the current forecast reflects a challenging economic environment of high taxes, spending cuts, and weak growth, with the OECD citing regulated utility prices and National Insurance contribution increases as key inflationary factors.

The inflation forecast will concern the UK government ahead of its next budget, which is slated for Nov 26, with the UK's finance minister, Chancellor of the Exchequer Rachel Reeves, facing mounting pressure.

While the UK remains an inflation outlier compared to European economies' 2 percent average, the eurozone itself faces persistent pressure, according to the OECD, with rates projected to sit at 2.1 percent in 2025 before easing to 1.9 percent in 2026.

Alvaro Santos Pereira, the OECD's chief economist, warned government debt had increased "fairly dramatically in the past few years" around the world.

"It is absolutely essential that countries go back to fiscal discipline, and ensure debt is on a downward trajectory, so that in the future we don't have issues with refinancing debt, or other issues with debt sustainability," Pereira said.

The Conservative Party's shadow chancellor Mel Stride said: "The OECD confirms what hard-working families already feel — under Labour, Britain is in a high-tax, high-inflation, low-growth doom loop. Rachel Reeves seems to think the solution is yet more tax rises. The UK is now teetering on the edge of stagflation, all driven by Labour's economic mismanagement.

"This should be a wake-up call to the chancellor: you can't tax your way to growth."

While the OECD projected modest UK growth of 1.4 percent this year and 1 percent in 2026, which is well below global forecasts of 3.2 percent and 2.9 percent respectively, Reeves chose to emphasize positive short-term indicators and noted "the British economy is stronger than forecast — it has been the fastest growing of any G7 economy in the first half of the year".