UK productivity, fiscal reforms seen as key to sustaining long-term growth

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UK productivity and fiscal reforms

Highlights

OECD projects UK GDP growth slowing to 0.9% in 2026 from 1.4% in 2025, with inflation peaking at 3.7% before easing to 2.4% in 2027.
OECD urges UK to reallocate spending toward productivity-enhancing investment, improve tax efficiency, and implement pension reforms to manage rising long-term fiscal pressures.
OECD identifies closing regional productivity gaps and advancing energy transition—with focus on grid resilience and cost reductions—as key to broad-based, sustainable UK growth.

OECD outlook points to slower growth

As reported by the OECD, its latest Economic Survey of the United Kingdom projects economic growth slowing to 0.9% in 2026 from 1.4% in 2025, before edging up to 1.1% in 2027. Inflation is expected to rise to 3.7% this year from 3.4% in 2025, then ease to 2.4% in 2027.

The organisation says high and volatile energy prices, rising fiscal pressures, weak productivity growth and wide regional disparities continue to weigh on economic performance and living standards. Asa Johansson, OECD Director of Economics Policy and Research, says the challenge for the UK is to raise productivity and living standards while preserving sound public finances.

The survey says fiscal discipline remains fundamental and should build on recent improvements to the fiscal framework. Reallocating spending toward productivity-enhancing public investment, improving tax system efficiency and reducing inefficient tax expenditures would help rebuild fiscal buffers while supporting long-term growth.

Rising long-term spending pressures also point to pension reforms, the OECD says. It recommends reviewing state pension indexation over the medium term, while strengthening work incentives and expanding private pension savings, especially for groups with low retirement savings such as the self-employed.

Regional and energy reforms in focus

Reducing productivity gaps across regions is identified as a key route to lifting national output and improving living standards across the country. The OECD says that will require a broad policy approach including better transport connectivity, stronger school-to-work transitions and closer links between employers and local labour markets.

Building on recent devolution reforms, the report says local governments need stronger staffing, expertise and funding so authorities can plan, implement and evaluate policies more effectively. Raising performance in lagging regions is presented as a central part of a more broad-based growth model.

The OECD also says the next stage of the UK energy transition should focus on energy security while lowering and stabilising costs for households and businesses. Better alignment of electricity and gas price signals, faster investment in electricity networks, greater system flexibility and stronger climate resilience for the grid would help reduce fossil fuel reliance, ease congestion and support the continued expansion of renewable power.

Our earlier article on proposed UK fiscal framework reform explained how the debate is shifting from simply meeting headline debt rules to measuring the state’s full financial position, including public assets and long-term liabilities. It outlined ideas such as adding public net worth to fiscal metrics, linking the Budget more closely to Whole of Government Accounts, and creating a UK Asset Map to improve stewardship and accountability for public investment.

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