The forecast for headline inflation was increased by 0.2 percentage points to 2.6pc, equal to or higher than all other G7 countries bar Germany, which faces a potential gas-price crisis.
The OECD said Britain’s economy would expand faster next year than those of France, Italy and Japan. But UK growth will trail Germany – even though its factories are under pressure from China – and Canada, where businesses are reeling from US tariffs.
Emma Reynolds, the Chief Secretary to the Treasury, said: “Despite unprecedented pressures and conflict in both the Middle East and in Europe, the UK economy is showing strong resilience.”
The US economy is expected to grow at 2.1pc, powered by the boom in AI investment.
But the OECD said there was “a risk that AI investment returns disappoint or take longer to materialise than currently expected, especially if bottlenecks emerge for inputs such as electricity or advanced semiconductors”.
AI could also be slowed by “mounting security concerns” among companies and consumers, the OECD said. The AI industry’s heavy and complex borrowing, and the pressure on bond yields, could also trigger their share prices to fall.
Andrew Griffith, the shadow chancellor, said: “The OECD has downgraded the UK’s growth for 2027 to just a third of the average growth rate of the G20. We can and should aspire to do much better.
“It urges countries to control spending and improve public sector efficiency. Instead, this Government is trying to find new ways to tax you whilst having to pay interest rates on their borrowing, which are the highest in the G7.”
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