Rachel Reeves has been branded a 'disaster' (Image: PA)
Rachel Reeves was branded a “disaster” after Britain’s economy was downgraded again. The Organisation for Economic Co-operation and Development (OECD) slashed expectations for the next two years as it warned of looming price rises from Donald Trump’s trade war.
It is the latest humiliation for the Chancellor just days away from her crunch Spring Statement and lays bare the negative impact of her Autumn Budget. Millions of hard-pressed families face being clobbered when her brutal ￡40billion tax raid kicks in during April. The gloomy outlook comes after the Office for National Statistics (ONS) revealed the economy is shrinking, with experts warning Britain could tip into recession.
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The latest OECD growth forecasts (Image: PA)
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Shadow Chancellor Mel Stride said the “warning lights are flashing red” because of Labour’s mishandling of the economy.
He said: “It should come as no surprise that the UK’s growth forecasts have been downgraded after Labour has trashed the economy.
“Things are set to get tougher, with Labour’s jobs tax lurking on the horizon. With nine days to go until Labour’s emergency Budget, the warning lights are flashing red.
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“This is the latest embarrassment for Keir Starmer after he made growth his number-one mission.”
Reform UK deputy leader Richard Tice said on Monday: “More than ever it’s clear that Rachel Reeves’s blunder Budget has been a disaster for the UK economy. Higher taxes and plummeting business confidence is a recipe for economic disaster and we’re seeing this plainly in today’s OECD figures."
The OECD, made up of 38 nations, said the UK is now expected to expand by 1.4% in 2025, rather than the 1.7% it anticipated in December.
For 2026, 1.2% has been pencilled in instead of 1.3%.
The estimates are another headache for the Chancellor as she struggles to balance the books ahead of next week’s Spring Statement.
The Office for Budget Responsibility watchdog is thought to have followed the Bank of England in lowering growth hopes, leaving Ms Reeves trying to fill a ￡15billion black hole.
Labour’s massive Budget tax raid in November has been partly blamed for the slowdown, which looks to have begun before Mr Trump’s return to power.
But responding to the OECD interim economic outlook report, Ms Reeves pointed to “global headwinds”.
She said: “This report shows the world is changing, and increased global headwinds such as trade uncertainty are being felt across the board.
“A changing world means Britain must change too, and we are delivering a new era of stability, security and renewal, to protect working people and keep our country safe.”
She said this would mean Britain can “better respond to global uncertainty”.
Earlier this month, Mr Trump’s new policies came into effect, seeing imports from Canada and Mexico taxed at 25%, with Canadian energy products receiving 10% tariffs.
In addition, the 10% tariff that Mr Trump placed on Chinese imports in February doubled to 20%.
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He has also pledged hefty tariffs on Europe and, while the UK has so far avoided harsh penalties, it has also been caught by last week’s sweeping 25% tariffs on steel and aluminium entering America.
Countries have been quick to retaliate and financial markets were sent reeling last week over fears it could spark a recession in the US.
For Canada, the OECD has predicted growth more than halving to 0.7% this year and next, down from the 2% it had predicted for both years.
Mexico will be sent into a recession, with output shrinking by 1.3% in 2025 and 0.6% in 2026, against forecasts in December for growth of 1.2% and 1.6% respectively.
Growth in China is projected to slow from 4.8% this year to 4.4% in 2026.
Europe will also be severely impacted by the trade war, with sharp downgrades across the board and the euro area as a whole now set to see growth of just 1% in 2025, down from 1.3% previously forecast, the OECD said.
The OECD said: “Governments need to find ways of addressing their concerns together within the global trading system to avoid a significant ratcheting up of retaliatory trade barriers between countries.
“As already highlighted, a broad-based further increase in trade restrictions would have significant negative impacts on living standards.”
With tax rises coming into force in April, concerns remain that economic growth will remain sluggish for some time.
Businesses have warned that paying more in National Insurance, along with minimum wages rising and business rates relief being reduced, could all affect the economy's ability to grow, with employers expecting to have less cash to give pay rises and create new jobs.
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Liberal Democrat Treasury spokeswoman Daisy Cooper said: “The Chancellor cannot ignore this steady drumbeat of economic misery any longer. Trump’s senseless tariffs and the Government’s own economic policies are acting as an anchor on any meaningful growth.
“The Chancellor must change course by first scrapping her growth-crushing jobs tax which is about to hammer small businesses, and second, by embracing the idea of a bespoke UK-EU customs union which would unleash growth.
“Only then will we see the growth needed to rebuild our public services and properly protect family finances.”