OECD warns Reeves higher taxes and spending restraint will limit consumer expenditure
Rachel Reeves has been warned by a leading thinktank that tight government spending and higher taxes will restrict consumer expenditure, despite predicting the UK economy will grow at a faster pace than France, Germany and Italy next year.Analysts at the Organisation for Economic Cooperation and Development (OECD) said the government’s ongoing “fiscal consolidation” – meaning higher taxes and reduced government spending – will 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 that the UK would expand by 1.2% next year, while the big three eurozone economies would each fail to reach 1%.Offering a boost to Reeves after she faced calls to resign after the budget, the UK’s growth rate was upgraded from a previous forecast of 1% next year.
However, that represented a slowdown from the 1.4% growth predicted this year, unchanged from the last forecast three months ago.The chancellor – who has put an emphasis on growing the UK economy – announced £26bn worth of tax rises in last week’s budget, with measures including a freeze on income tax thresholds that will leave 1.7 million people paying more, taking the tax burden to an all-time high, according to the Office for Budget Responsibility (OBR).Separately, the OECD said the US economy would grow by 1.
7%, 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.In a report that highlighted how a flurry of activity this year to cope with Trump’s tariffs had given a temporary lift to many economies, the OECD said there would be a return to lower, stagnant rates of expansion across much of the industrialised world.The UK, like most industrialised countries, is expected to post a reduction in interest rates as inflation is predicted to gradually return to a 2% target by mid-2027.The report predicts there will be two more reductions in rates, from 4% now to 3.
5% in the second quarter of 2026, but this will mark the end of rate cuts,The chancellor welcomed the prospect of higher growth and lower inflation,She said: “Last week, my budget cut waiting lists, cut borrowing and debt, and cut the cost of living,Less than a week later, the OECD has upgraded our growth and cut its forecast for inflation next year,”The UK’s economic establishment was rocked on Monday by the resignation of Richard Hughes, the chair of the OBR, which provides the Treasury with independent forecasts of the economic outlook and government finances.
Hughes quit after a leak report said the leadership of the OBR should take responsibility for information about the budget being accessed before the chancellor’s speech, breeching a longstanding protocol,Hughes was also in the midst of a dispute with Reeves over whether she misled the public about the state of the public finances based on private briefings by the OBR,Most governments are expected to struggle to accelerate growth next year while they impose tight spending controls and restrict borrowing levels, limiting their ability to increase investment and raise living standards,Sign up to Business TodayGet set for the working day – we'll point you to all the business news and analysis you need every morningafter newsletter promotionMathias Cormann, the OECD secretary general, described the return of low growth as a mark of resilience amid global uncertainty about trade,However, he said there were concerns about low levels of productivity across the OECD’s 38 member countries, which also include Vietnam, Mexico, Canada and Costa Rica.
The OECD report said: “The global economy has been resilient this year, despite concerns about a sharper slowdown in the wake of higher trade barriers and significant policy uncertainty.“Activity has held up thanks to front-loading of production and trade, strong AI-related investment, and supportive fiscal and monetary policies.“Yet, global trade growth moderated in the second quarter of this year, and we expect higher tariffs to gradually feed through to higher prices, reducing growth in household consumption and business investment.Labour markets are still relatively tight, but are showing signs of easing, as job openings have fallen back to their pre-pandemic levels of 2019.”In line with most other international forecasters, the OECD said global economic growth will slow from 3.
3% in 2024 to 3,2% in 2025 and 2,9% in 2026, followed by a small rebound to 3,1% in 2027,In October the International Monetary Fund said global growth was projected to slow from 3.
3% in 2024 to 3.2% in 2025 and 3.1% in 2026.In an apparent rebuke to Trump, Cormann said: “Constructive dialogue between countries is central to ensure a lasting resolution to trade tensions and improve the economic outlook.”
BoE plans to ease capital rules on banks in latest loosening of post-2008 controls
The Bank of England is easing capital rules for high street banks for the first time in a decade, marking the latest attempt to loosen regulations designed to protect the UK economy in the wake of the 2008 financial crisis.The central bank has announced it will lower capital requirements related to risk-weighted assets by one percentage point to about 13%, reducing the amount lenders must hold in reserve.Capital requirements act as a financial cushion against risky lending and investments on bank balance sheets.The Bank’s move, which is due to come into force in 2027, is designed to make it easier to lend to households and businesses. However, there are no explicit rules on how banks use the extra funding, meaning bosses could use the cash to pay shareholders if so inclined
‘The Chinese will not pause’: Volvo and Polestar bosses urge EU to stick to 2035 petrol car ban
As the battle lines harden amid Germany’s intensifying pressure on the European Commission to scrap the 2035 ban on production of new petrol and diesel cars, two Swedish car companies, Volvo and Polestar, are leading the campaign to persuade Brussels to stick to the date.They argue such a move is a desperate attempt to paper over the cracks in the German car industry, adding that it will not just prolong take up of electric vehicles but inadvertently hand the advantage to China.“Pausing 2035 is just a bad, bad idea. I have no other words for that,” says German-born Michael Lohscheller, the chief executive of Polestar, Europe’s only all-electric car manufacturer.“If Europe doesn’t take the lead in this transformation, be rest assured, other countries will do it for us
Report detailing risks to UK gas security was not one to bury on budget day | Nils Pratley
Chris O’Shea, the chief executive of British Gas-owning Centrica, tells an eye-popping tale from his early career in the North Sea offshore industry. During a routine underwater inspection in the 1990s, an unexploded bomb from the second world war was discovered close to the pipeline carrying oil ashore from the large Nelson field.Happily, the danger was dealt with. The point of the story is only that risks to critical pieces of infrastructure can come from unexpected sources. Stuff can happen
People living along polluted Thames file legal complaint to force water firm to act
Communities across south-east England are filing the first coordinated legal complaints that sewage pollution by Thames Water negatively affects their lives.Thames Water failed to complete upgrades to 98 treatment plants and pumping stations which have the worst records for sewage pollution into the environment, despite a promise to invest in them over the last five years.People in 13 areas including Hackney, Oxford, Richmond upon Thames and Wokingham are sending statutory nuisance complaints to their local authorities demanding accountability from Thames Water and urgent action.At several sites it is not just raw sewage from storm overflows that causes pollution but also the quality of treated effluent coming from Thames Water facilities, which presents a direct threat to public health, the campaigners say.At Thames’s Newbury sewage treatment plant, raw effluent discharges into the River Kennet, a protected chalk stream
Zipcar, world’s biggest car-sharing company, to close UK operation
The world’s biggest car-sharing company, Zipcar, has said it will close its UK operation, removing access to its shared fleet across London at the end of this year.The company, owned by the US car rental group Avis Budget, said it would suspend new bookings through its app after 31 December, pending the outcome of a consultation on possible redundancies. The UK operating company had 71 staff last year, according to its latest accounts.The closure will be a blow to advocates of carsharing as a more sustainable form of personal transport, as well as to some car clubs that relied on Zipcar to share private vehicles.James Taylor, Zipcar UK’s general manager, wrote in an email to customers: “We are proposing to cease the UK operations of Zipcar and have today started formal consultation with our UK employees
OBR chair quits after inquiry into early release of budget document
The chair of the Office for Budget Responsibility has resigned after a damning internal inquiry into the leak that threw Rachel Reeves’s budget into chaos described it as the “worst failure” in the institution’s history.The departure of Richard Hughes, who said he took “full responsibility” for the watchdog’s failure to handle sensitive information, dragged the rolling recriminations over the budget into a fifth day.Keir Starmer had notably failed to express confidence in the senior economist, while criticising the OBR for the “serious error” that he said was a breach of market-sensitive information and a “massive discourtesy” to parliament.While ministers hope the resignation will draw a line under tensions with the OBR, the chancellor remains under pressure, with critics seeking to draw a contrast between Hughes’s decision to quit and Reeves’s defiance over her handling of the budget.Opposition leaders have accused the chancellor of misleading the public by claiming there was a hole in the public finances to justify tax rises, a charge that the government has denied
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