OECD hikes UK economy forecast propelling Britain to top of G7 table, but inflation set to bite

The organisation overseeing the world’s richest economies hiked its forecasts for the UK economy this year and next year, propelling Britain to the top of the G7 rankings for growth.

The UK economy will expand 6.9 per cent this year, 0.2 percentage points higher than previously expected, according to the Organisation for Economic Development’s (OECD) latest forecasts for the global economy.

Despite the rosy outlook, the organisation warned the UK’s recovery could be spiked by a nasty bout of entrenched inflation and shortages.

“A prolonged period of acute supply and labour shortages could slow down the recovery by forcing firms into a more permanent reduction in their operating capacity,” the OECD warned.

Crippling shortages of everything from raw materials to workers has left UK businesses short of resources needed to maintain normal business activity, which has clamped down on Britain’s economic recovery.

Swelling costs have prompted businesses to hike prices to protect their margins, partly contributing to the UK inflation rate climbing to its highest level in nearly a decade.

Experts at PwC sounded alarm in a report this week, asserting that Brits could cut spending sharply if inflation persists, suffocating UK economic growth in the process.

Mathias Cormann, secretary general of the OECD, said: “The strong rebound we have seen is now easing and supply bottlenecks, rising inflation, and the continuing impact of the pandemic are clouding the horizon.”

In the OECD’s previous projections, the UK economy was still ahead of its G7 rivals, but the fresh report cements Britain’s position as one of the world’s leading economic growth engines.

The UK will retain its crown next year as the fastest growing economy out of the world’s economic powerhouses, expanding 4.7 per cent in 2022.

The high growth print, however, has been partly driven by Britain suffering one of the worst hits from the Covid-19 crisis, with its economy sinking 9.7 per cent last year.

The OECD revised down their expectations for global economic growth to 5.6 per cent, driven by a longer than expected inflation spike prompting central banks to raise rates.

Central banks chiefs are already asserting an increasingly hawkish position, suggesting tighter policy is coming soon..

US Fed Chair Jerome Powell doubled down today on ending the central bank’s bond purchases a few months earlier than expected.