The Organisation for Economic Co-operation and Development has forecast UK economic growth of less than 1% this year, with private consumption and investment expected to remain weak.
The OECD expects UK GDP to grow by 0.9% in 2026, up from a previous estimate of 0.7%, before rising to 1.1% in 2027. Although the revision is higher than earlier projections, the outlook still points to a subdued year in which growth is expected to rely heavily on public spending.
Business investment, measured by fixed capital formation, is forecast to flatline this year after rising 4.3% last year. Public sector consumption is expected to increase by 1.7%, while private consumption is forecast to rise by just 0.4%, reflecting continued pressure on household demand.
Inflation remains a constraint on the recovery. The UK is expected to sit among the higher G7 inflation readings, with core inflation revised to 3.1%. Businesses are therefore facing weak growth, persistent cost pressure, and a labour market that is forecast to soften further.
Sachin Agrawal, Managing Director for Zoho UK, said: “UK businesses continue to battle sluggish growth, squeezed by cost pressures, geopolitical uncertainty and wage growth. The result is that business leaders are becoming more cautious, scrutinising spending and shifting priorities to productivity and ROI in order to tread water.”
He added: “During economic difficulty, businesses demand more value from partners and every investment as they shore up their supply chains and, customers and employees. Tech infrastructure plays a key role, particularly with data and AI, which is a driving force for enhanced productivity as businesses look to keep costs down. It’s important that business leaders focus on long-term resilience to weather the current storm, and future ones, building trust with customers in the face of wavering confidence. When the business community is thriving then economic growth often follows.”
Productivity investment is becoming harder to separate from cost control. When demand is weak, companies tend to scrutinise discretionary spending more closely, but the same conditions can make automation, data systems, and operational efficiency more important to margin protection. Investment cases must clear a higher bar when revenue growth is uncertain and borrowing costs remain material.
The OECD also forecast that the UK unemployment rate would reach 5.5% this year, an 11-year high. That labour market warning follows the government-commissioned Young people and work interim report, led by Alan Milburn, which estimated the cumulative annual cost of almost one million young people not in education, employment, or training at £125 billion.
Sheila Flavell CBE, COO of FDM Group, said: “There is clearly a long-term talent crisis in the making as businesses scale back hiring, having significant knock-on effects on the wider UK economy. The challenge is particularly stark for graduates, who are applying for hundreds of entry-level roles with little to no response as demand has shifted towards mid and senior level hires.”
She added: “A strong jobs market is vital to sustainable economic growth and must be addressed by government, education and industry. It drives innovation and productivity while bringing through the next generation of graduate talent at the forefront of growing industries such as AI and data. These are the skills that will drive the UK’s competitive edge.”
Weak hiring can help companies control costs in the short term, but prolonged caution narrows entry-level pathways and reduces the supply of skills needed in higher-growth sectors. With AI, data, and digital infrastructure now central to efficiency strategies, the UK’s growth outlook depends partly on whether employers continue to invest in the people and systems needed to raise output.
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