UK warned over ballooning debt costs and slower growth ahead of Budget

Image source, Getty ImagesByTom EspinerBusiness reporterPublished23 September 2026, 09:05 BSTUpdated 45 minutes agoThe UK has been warned over ballooning debt costs and slower economic growth ahead of Chancellor John Healey's first Budget next month.

The UK was among countries facing downgraded growth forecasts in a report by the influential Organisation of Economic Co-operation and Development (OECD) on Wednesday.

That came as the head of the International Monetary Fund (IMF) told the BBC that Britain and the US needed to reduce debt due to spiralling borrowing costs.

The ongoing conflict in the Middle East and the Russia-Ukraine war has pushed up the cost of crude oil leading to higher fuel and energy costs, which in turn has driven up inflation around the world.

The UK economy will grow by slightly less than expected next year, according to the OECD which now expects growth of 1% next year rather than 1.1%.

However, it said the UK had proved more resilient than expected this year, upgrading its forecast for growth 0.9% to 1.1%.

Meanwhile, IMF head Kristalina Georgieva told the BBC on Tuesday that global economic shocks had been "pushing debt levels up like a staircase not to heaven" but that governments had taken "no action to contain that service cost".

"[It's] time to take that action," she said, adding that "courage" was needed by politicians to take the necessary steps.

Inflation has also pushed up the cost of interest on government debt, which alongside an unexpected surge in government borrowing in August has added to the pressure on Healey.

Prime Minister Andy Burnham has made easing the cost of living for households one of his key aims, while the government is under pressure to spend more on defence.

However, Burnham and Healey face a difficult balancing act, trying to offer more support to households while sticking to Labour's manifesto commitments on tax and the government's self-imposed fiscal rules.

The impact of higher fuel prices next year depends on how long supply disruptions last, the OECD said. Stockpiles of oil and supplies from outside the Gulf states have helped cushion the effects on economies so far, it said.