Published On : 05/02/2024

UK set for weak growth and highest inflation in G7, OECD says

By Andy Bruce

LONDON (Reuters) -Britain will suffer some of the lowest rates of economic growth and highest inflation among Group of Seven countries this year and next, forecasts from the Organisation of Economic Co-operation and Development suggested on Thursday.

The OECD cut this year’s growth forecast for the British economy to 0.4% from the 0.7% it predicted in February. Only Germany is expected to perform worse among G7 advanced economies, which also include Canada, France, Italy, Japan and the United States.

UK growth in 2025 is expected to recover to just 1.0%, compared with the OECD’s previous forecast of 1.2%, putting Britain at the bottom of the G7.

The OECD forecasts showed Britain’s annual rate of consumer price growth was likely to be the highest among G7 countries, both this year and next.

The forecasts are awkward for Prime Minister Rishi Sunak, whose Conservative Party is lagging behind the opposition Labour Party in opinion polls ahead of a national election likely later this year.

Sunak has told voters it would be unwise to ditch his party just as his economic plan is starting to work.

“This forecast is not particularly surprising given our priority for the last year has been to tackle inflation with higher interest rates,” finance minister Jeremy Hunt said in response to the OECD forecast. He pointed to more optimistic forecasts from the International Monetary Fund.

In April, the IMF similarly predicted Britain would generate the second-slowest growth among G7 countries in 2024, but it forecast faster growth in 2025 than for France, Germany, Italy and Japan.

“Robust real wage growth will support activity in the first half of 2024,” the OECD’s report for Britain said.

“However, sticky services price inflation and fiscal drag will continue to weigh on consumers’ purchasing power, soft external demand will constrain trade growth, and policy uncertainty will impede business investment.”

The opposition Labour Party said the OECD’s downgrade reflected 14 years of failure under the Conservatives.

The OECD said it should be a priority for Britain’s government to rebuild its fiscal buffers, adding this necessitated “credible” budget plans.

Economists have warned that the public spending assumptions underpinning the government’s budget published in March are unrealistic.

(Reporting by Andy Bruce, Editing by Paul Sandle, Tomasz Janowski and Christina Fincher)

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