With Growth Stuck at 1%, What Can the UK Do to Avoid Stagnation?

Britain's economic recovery has stalled, with the latest forecast of the Organisation for Economic Co-operation and Development (OECD) painting a bleak picture for the year ahead. On 3 June 2025, OECD projected that UK gross domestic product growth will slow to just 1%—placing Britain among the weakest performers in the G7 nations.

This sobering outlook follows a modest rebound of 0.6% in 2024, supported largely by easing inflation and resilient consumer spending. However, the OECD warns that a combination of structural and geopolitical challenges threatens to derail the country's long-term growth prospects.

The warning follows a modest 0.6% rebound in 2024, fuelled largely by falling inflation and resilient consumer spending. However, according to the OECD, the road ahead is fraught with challenges: stubborn productivity woes, weak investment, geopolitical instability, and the looming threat of US trade tariffs under a potential second Trump administration.

Among the concerns highlighted are persistent productivity shortfalls, sluggish business investment, workforce shortages, and growing uncertainty around trade—particularly the looming threat of US trade tariffs under Donald Trump second term as President.

Reinvigorating Investment Through Stability and Strategy

A long-standing weakness of the UK economy is its low rate of private sector investment. According to the Centre for Economic Policy Research (CEPR), business investment remains significantly below pre-Brexit levels—held back by policy uncertainty and shifting international trade relationships.

To reverse this trend, economists and business leaders alike are calling for a clearer industrial strategy. Simplifying the planning system, particularly for green infrastructure and housing, could help unlock capital flows. The Treasury's decision to make full expensing for business investment permanent in the 2024 Budget is a welcome step, but experts argue that it must be accompanied by broader reforms to create a stable, pro-investment environment.

Bridging the Skills Gap to Boost Productivity

The UK continues to trail behind international peers on productivity, due in part to a mismatch between education outcomes and labour market needs. Workforce shortages are still being felt across key sectors, including healthcare, construction, and logistics.

According to the Institute for Fiscal Studies, public spending per student in further education remains no higher today than in the mid-1990s. Meanwhile, university funding has remained relatively stable, further entrenching a bias towards academic over vocational pathways.

Though the government has pledged reforms to apprenticeships and skills training, implementation has been uneven. Analysts argue for a more robust roll-out of the Lifelong Learning Entitlement and stronger alignment between education policy and the evolving demands of sectors such as artificial intelligence, green technology, and social care.

Navigating Trade Risks in a Volatile Global Landscape

The OECD has raised alarms over the return of Donald Trump to the White House. With the recent announcement of 100% increase tariffs—particularly targeting car and steel imports—UK exports could suffer, especially given Britain's recent pivot towards a US-centric trade approach post-Brexit.

Trade experts warn that this overdependence leaves the UK vulnerable to political shocks. David Henig, UK Director at the European Centre for International Political Economy, noted in a recent LinkedIn post:

'Against a context of growing US chaos, the continued UK focus on specific deals barely discussed in public needs to change to see the establishment of a broad, predictable framework.'

In light of these risks, many argue that strengthening trade ties with the European Union is now more critical than ever—even if rejoining the single market remains politically sensitive.

Lifting Real Wages to Revive Domestic Demand

While inflation has eased, real wages remain effectively flat compared to pre-pandemic levels. The Resolution Foundation projects just a 0.4% increase in real median wages in 2025—a figure that could weigh heavily on consumer confidence and household spending.

To stimulate demand, economists suggest focusing on targeted tax relief for low- and middle-income earners rather than politically popular but economically limited measures like fuel duty freezes or inheritance tax cuts.

Green Growth as a Catalyst for Economic Renewal

Global investment in clean energy surpassed $2 trillion (£1.48 trillion) in 2024, with a required annual spend of $4 trillion (£2.95 trillion) to meet net-zero targets by 2050. Yet the UK risks being left behind as inflation, regulatory hurdles, and auction failures undermine its once-dominant offshore wind sector.

Accelerating grid modernisation and introducing inflation-linked contracts could help revive investor confidence. Sam Alvis, senior adviser at Green Alliance, warns:

'Now is not the time to back away from much-needed green investment. As the UK enters recession, public investment in clean infrastructure is more crucial than ever. Renewable energy, nature restoration, and better public transport can all enhance productivity while cutting emissions.'

The Path Forward

Avoiding long-term economic stagnation will demand more than short-term fixes. With the OECD forecasting stronger growth in the US (2.2%) and China (4.8%) in 2025, the UK must confront its structural deficiencies head-on.

A coherent, forward-looking strategy—grounded in investment, skills development, green transition, and diversified trade—may be the only sustainable route out of Britain's low-growth trap.