UK set for stubborn inflation and slow growth, OECD warns
Inflation in the UK will be higher than previously expected next year while growth will be lower, according to cheerful new forecasts from the Organisation for Economic Co-operation and Development (OECD).
In its latest interim outlook, economists at the OECD expect UK inflation to average 7.2 per cent across 2023, up from 6.9 per cent in their June forecast.
Among G20 nations, only Argentina, where inflation is forecast to be over 118 per cent, and Turkey, where it is expected to be over 52 per cent, will have higher levels of price increases.
Next year inflation is predicted to fall to 2.9 per cent, which is slightly below the eurozone but 0.1 per cent higher than the OECD previously predicted in June.
Having peaked at over 11 per cent last year, inflation has come down to 6.8 per cent in the UK. However, it has proved far more stubborn than many economists predicted, with concerns growing that it is becoming increasingly embedded in the economy.
In response, interest rates have risen to a post-financial crisis high of 5.25 per cent, with markets expecting a further rate hike on Thursday.
This in turn has slowed growth in the UK. Across 2023, growth in the UK is expected to average just 0.3 per cent before rising to 0.8 per cent across next year. In June, the UK was forecast to grow at 1.0 per cent next year.
“Activity has already weakened in the euro area and the United Kingdom, reflecting the lagged effect on incomes from the large energy price shock in 2022 and the comparative importance of bank-based finance in many European economies,” the report said.
Chancellor Jeremy Hunt, said: “Today the OECD have set out a challenging global picture, but it is good news that they expect UK inflation to drop below three per cent next year.”
However, Darren Jones, shadow chief secretary to the Treasury, said the forecasts show that “the Tories are delivering more of the same.”
The gloomy forecasts for the UK reflect a picture of deteriorating global growth. The OECD noted that advanced economies grew faster than expected at the start of the year, but they now expect global growth to moderate going into next year.
“The impact of tighter monetary policy is becoming increasingly visible, business and consumer confidence have turned down, and the rebound in China has faded,” the report noted.
Growth across G20 nations is forecast to be three per cent in 2023 before falling to 2.7 per cent next year. US growth in particular is expected to moderate, falling to 1.3 per cent next year from 2.2 per cent across 2023.
Concerns around the persistence of inflation and the impact of interest rate hikes mean “risks remain tilted to the downside”.
The organisation said that reviving global trade is an important way of boosting growth. In a reference to the growth of protectionism, it said “concerns about economic security should not prevent advantage being taken of opportunities to lower trade barriers”.