Death rates among under-fives in the UK are higher than in the Czech Republic, Slovenia and Finland and most countries to the west of Europe, while women face lower life expectancy, it said.
The review's chairman, Professor Sir Michael Marmot, also said the current high level of young people not in employment, education or training (Neets) - particularly the long-term unemployed - is a "public health time bomb waiting to explode".
He said: "Unemployment may be falling in the UK, but persistent high levels of the number of young people over 18 not in employment, education or training is storing up a public health time bomb waiting to explode.
"We are failing too many of our children, women and young people on a grand scale.
"I would say to any government that cares about the health of its population: look at the impact of their policies on the lives people are able to lead and, more importantly, at the impact on inequality.
Data published in August showed there were 1.09 million 16 to 24-year-olds in the UK who were Neets in the quarter to June, down by 1,000 from the first three months of the year and by 104,000 from a year earlier.
The percentage of young people classed as Neet was unchanged at 15.1%, according to the Office for National Statistics.
Today's report - called Review of Social Determinants and the Health Divide in the WHO European Region - was published by WHO and the University College London Institute of Health Equity.
It follows two years of research by Europe's leading experts and follows a 2010 English review.
The report said the UK falls behind its closest European neighbours on key indicators such as female life expectancy, deaths of children under five and child poverty.
Female Life Expectancy is 83 in the UK, behind Spain (85), France (85), Italy (85), Cyprus (84) and Germany (84).
Death rates for under-fives in the UK (5.4 per 1,000 live births), which are linked to poverty, are higher than most countries in the east of Europe.
The figure is also higher than most countries in the west of the European region, for example Iceland (2.2 per 1,000), Luxembourg (3 per 1,000) and Greece (4 per 1,000).
Children are more likely to live in poverty in the UK than many other countries in Europe including Iceland, Cyprus and Ireland, the report went on.
In the UK, one in four children live in poverty and just under than half of those reach a good level of development at age five, compared with two-thirds of children not in poverty.
Sir Michael said: "'Good quality early years provision must be a priority for all children. But childcare in this country is expensive and many people cannot afford to utilise it or go back to work after having children.
"There needs to be a broad range of social policies, including improvements in every child's start to life, adequate social protection that can act as a buffer against low income over the life-course, and provide a minimum standard for healthy living."
The report said every year health inequalities cost the taxpayer in England £31 to £33 billion in lost productivity.
Lost taxes and higher welfare payments also cost the UK economy in the range of £20 to £32 billion per year and extra NHS healthcare costs are in excess of £5.5 billion per year.