PARIS, France – The United Kingdom has weathered a series of major economic shocks. Stronger productivity growth and fiscal discipline will be key to raise living standards over the longer term, building on the government’s ambitious reform agenda. Reducing regional productivity gaps and strengthening energy security would support more resilient and broad-based growth, according to a new OECD report.
The latest OECD Economic Survey of the United Kingdom projects that growth will slow temporarily to 0.9 percent in 2026, down from 1.4 percent in 2025, before picking up to 1.1 percent in 2027. Inflation is expected to rise to 3.7 percent this year from 3.4 percent in 2025, before easing to 2.4 percent in 2027.
High and volatile energy prices, rising fiscal pressures, weak productivity growth and large regional disparities continue to weigh on economic performance and living standards, highlighting the need for sustained structural reforms to strengthen growth and resilience.
“The challenge for the United Kingdom is to drive faster productivity growth and higher living standards while preserving sound public finances”, said Asa Johansson, OECD director of economics policy and research, launching the report in London. “Delivering the government’s ambitious reform agenda, while rebuilding fiscal buffers and investing in people, energy and regions, can help secure stronger and more sustainable growth over the long term.”
Fiscal discipline remains fundamental, building on recent improvements to the fiscal framework. Reallocating spending towards productivity-enhancing public investment, together with improving the efficiency of the tax system and reducing inefficient tax expenditures, would help rebuild fiscal buffers and support long-term growth.
Rising long-term spending pressures also call for pension reforms. Reviewing state pension indexation over the medium term would help preserve fiscal sustainability while maintaining pension adequacy. Strengthening work incentives and expanding private pension savings, particularly for groups with low retirement savings, like the self-employed, would improve retirement incomes and reduce future fiscal pressures.
Reducing regional productivity disparities by raising performance in lagging regions is key to boosting national productivity growth and improving living standards countrywide. Achieving this will require a comprehensive policy approach. Improving transport connectivity can expand access to jobs and support stronger local economic dynamism, while greater capacity at the local level is needed to facilitate school-to-work transitions, engage employers and better connect people to opportunities. Building on recent devolution reforms, strengthening local government capacities through staffing, expertise and funding, should be prioritised, so that local authorities can plan, implement and evaluate policies effectively.
The United Kingdom has been a global leader in reducing greenhouse gas emissions and has made rapid progress in expanding renewable energy. The next phase of the energy transition should focus on strengthening energy security while ensuring households and businesses benefit from lower and more stable energy costs. Better aligning electricity and gas price signals would encourage electrification, reduce reliance on fossil fuels and strengthen energy security. Faster investment in electricity networks, together with greater system flexibility, is needed to ease grid congestion, accommodate the rapid expansion of renewable electricity and improve the resilience of the energy system. Strengthening the climate resilience of the electricity grid will also be essential for energy security as extreme weather events become more frequent.