Prime Minister Andy Burnham (Image: Getty)

“The OECD urge countries to control spending and improve public sector efficiency. Instead, this Government is trying to find new ways to tax you whilst having to pay interest rates on their borrowing which are the highest in the G7.”

Reform UK’s Robert Jenrick added: “The UK is forecast to grow much slower than the US with inflation still stuck at around 3%. And that’s before the possible shock to diesel supplies from a Trump export ban.

The economy is on course to have grown by 1.1% this year, according to the new forecasts by the OECD.

Mr Burnham admitted the state of Britain’s economy has worsened in recent months amid the Iran conflict, which has pushed up energy prices.

Speaking to reporters as he travelled to New York for the UN General Assembly, he said: “The truth of the matter is that because of the situation in the Middle East, the position changed, and has changed over the time I’ve been in. That’s just the reality of the situation that we’re in.

“And of course the message is that we want to see an end to the conflict as quickly as possible and we stand ready to play our part.”

Andy Burnham issued huge warning as PM suffers new economic blow

Prime Minister Andy Burnham has been handed a fresh economic warning after the Organisation for Economic Co-operation and Development (OECD) downgraded its forecast for UK growth next year, adding to the pressure on the Government ahead of its first major Budget.

The OECD now expects the British economy to grow by just 1% in 2027, down from its previous forecast of 1.1%. At the same time, it expects the UK to perform better than previously thought during 2026, with growth estimated at around 1.1%, compared with an earlier forecast of 0.9%.

The figures therefore present a mixed picture for Burnham’s Government. The immediate economic performance has been stronger than expected, but the outlook for next year has deteriorated as higher energy prices, persistent inflation and elevated borrowing costs continue to weigh on the economy.

For a prime minister who has made economic growth a central part of his political programme, the downgrade represents another challenge at a particularly sensitive moment.

OECD cuts its forecast for Britain

The OECD’s latest assessment comes as governments around the world attempt to deal with the economic consequences of continuing geopolitical tensions and higher energy prices.

For Britain, the organisation has raised its estimate for economic growth in 2026 to approximately 1.1%. That is an improvement on the 0.9% forecast published in June.

However, the OECD expects growth to slow to 1% in 2027.

The organisation has pointed to renewed energy-price pressures as one of the factors likely to weaken economic activity. Higher energy and food costs can reduce household purchasing power while simultaneously increasing costs for businesses.

The OECD also warned governments that high borrowing costs make controlling expenditure and improving public-sector efficiency increasingly important.

Its assessment therefore arrives at an awkward time for Burnham and Chancellor John Healey, who are preparing for the Budget on October 28.

Inflation remains a major concern

Growth is only part of the problem facing the Government.

Official figures published earlier this month showed that UK Consumer Prices Index inflation rose from 2.9% in July to 3.1% in August.

Fuel prices were an important contributor. Average petrol prices increased by 9.1 pence per litre between July and August, while diesel prices rose by 14.2 pence per litre. The renewed increase in energy prices has been linked to the continuing conflict in the Middle East and its impact on global oil and gas markets.

For households, the combination of slower future growth and higher prices creates a difficult economic environment.

If inflation remains elevated, households may continue to face pressure on real incomes. Meanwhile, higher borrowing costs can make it more expensive for businesses and consumers to finance investment and major purchases.

Burnham has acknowledged the seriousness of the situation.

Earlier this month, the Prime Minister said that the upcoming Budget would involve “difficult decisions”, while insisting that his Government would not take risks with living standards or the wider economy.

Pressure before the October Budget

The OECD warning comes just weeks before Healey presents the Government’s Budget.

Economists have already warned that the Government’s fiscal position could require difficult choices between increasing revenue and controlling expenditure.

The Independent reported that economists estimated the Government could face a fiscal gap of as much as £10 billion, while the financial buffer against economic shocks had reportedly fallen substantially.

The combination of higher borrowing costs, elevated inflation and weaker projected growth makes the Budget particularly important.

The Government needs to demonstrate that it can fund its spending commitments while maintaining confidence in the UK’s public finances.

At the same time, raising taxes can affect household disposable income and business investment, while spending reductions can create political and economic difficulties of their own.

The challenge is therefore not simply how much money the Treasury raises or spends. It is also how fiscal decisions affect growth, inflation, investment and confidence.

Burnham’s economic ambitions

Burnham entered Downing Street promising a different economic approach from the previous Labour administration.

His Government has repeatedly emphasised investment, regional development, infrastructure and the ambition to create jobs and growth across the country.

Treasury minister Emma Reynolds defended the Government’s record after the latest OECD figures, arguing that the UK economy had shown resilience despite international pressures.

She pointed to the UK’s growth during the first half of 2026 and said the Government was beginning longer-term changes intended to create jobs and growth across the country.

That distinction is important.

The OECD forecast does not say that Britain is entering recession. Nor does it suggest that the economy is contracting.

Instead, it points to relatively modest growth and a slowdown from the stronger performance expected in 2026.

The political question for Burnham is whether the Government can convert its economic strategy into stronger productivity and sustained growth while dealing with immediate fiscal pressures.

Borrowing costs add another complication

Government borrowing is another area attracting attention.

UK gilt yields have risen significantly in recent weeks, increasing the cost of servicing government debt.

The OECD has warned that high borrowing costs across advanced economies underline the need for stronger efforts to control and reallocate spending, improve public-sector efficiency and strengthen government revenues.

IMF managing director Kristalina Georgieva has similarly called on advanced economies, including Britain, to reduce debt levels and make fiscal consolidation a priority.

For Burnham’s Government, this creates a difficult balance.

The Prime Minister wants to invest in public services and infrastructure while also maintaining fiscal credibility. Yet a large expansion in borrowing could become more expensive if investors demand higher returns on government debt.

Burnham has previously argued that Britain is too exposed to international financial shocks.

In a recent interview, he stood by his warning that the country should be less “in hock” to bond markets, while stressing that he was not arguing for abandoning spending discipline. Instead, he said he wanted a more streamlined and productive state.

The energy shock complicates the picture

One of the most significant external factors is the continuing disruption to energy markets.

The OECD expects the recent increase in energy prices to contribute to higher inflation in the near term.

Britain is particularly sensitive to energy-price movements because higher wholesale prices can feed into household energy bills, transport costs and business expenses.

The effect can be especially difficult for policymakers because an energy shock can simultaneously increase inflation and reduce economic growth.

That leaves central banks facing a complicated policy environment.

The Bank of England has already indicated that inflation could remain above its 2% target for longer than previously expected. The OECD similarly expects inflation to remain elevated before gradually moving lower.

Opposition parties challenge the Government

The latest economic figures have also given opposition parties an opportunity to challenge Burnham’s approach.

Conservative shadow chancellor Andrew Griffith argued that the OECD’s 2027 growth forecast was too weak and criticised the Government’s approach to taxation and public spending.

Reform UK’s Robert Jenrick also highlighted the combination of slower projected growth and inflation, while warning about additional risks to the economy.

These are political responses rather than independent economic assessments, but they demonstrate how the OECD figures are likely to feature prominently in parliamentary debate over the coming weeks.

The Government, meanwhile, has emphasised that the economy has performed better in 2026 than earlier forecasts suggested.

That difference in interpretation is likely to continue through the Budget debate.

What does the warning mean for Burnham?

The OECD downgrade does not establish that Burnham’s economic strategy has failed.

It does, however, underline the difficult circumstances in which his Government is attempting to deliver its programme.

Britain is facing modest projected growth, inflation above target, high borrowing costs and pressure on public finances.

At the same time, Burnham has made economic expansion one of the defining objectives of his premiership.

The Government therefore faces a series of interconnected choices.

It must decide how to finance public services, how much to invest, how to maintain fiscal credibility and how to support households while inflation remains elevated.

Those choices will become clearer in the October Budget.

For now, the OECD’s forecast offers both a warning and a point of context. The UK economy is expected to grow faster in 2026 than previously predicted, but that improvement is followed by a projected slowdown in 2027.

A difficult test ahead

Burnham’s response will ultimately depend on whether his Government can translate its longer-term ambitions into stronger productivity and investment while navigating the immediate pressures created by inflation, energy prices and government borrowing.

The latest figures show that Britain is not facing a single economic problem. Instead, several pressures are arriving simultaneously.

Growth is expected to remain positive, but relatively weak. Inflation has moved above 3%. Energy markets remain vulnerable to geopolitical events. Borrowing costs are high, and the Government’s fiscal room is under scrutiny.

Burnham has already acknowledged that difficult decisions are ahead.

The October Budget will provide the clearest indication yet of how his Government intends to respond.

The OECD’s latest warning therefore matters less as a prediction of Britain’s economic future than as an indication of the constraints facing policymakers.

For Burnham, the task will be to demonstrate that his promise of stronger growth can coexist with fiscal discipline, while protecting households and maintaining confidence in Britain’s public finances.

The coming months will show how successfully his Government can manage that balance.

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