The UK economy is predicted to experience “sluggish” growth over the next two years, falling behind earlier forecasts, according to economic experts. The Organisation for Economic Co-operation and Development (OECD) has revised down its predictions for UK growth in 2024 and 2025, predicting it will have the feeblest development across the G7 nations next year.
OECD’s most recent economic outlook states that there are “some signs that the global outlook has started to brighten” as inflationary pressures ease. The worldwide GDP is anticipated to rise by 3.1 percent in 2024, which is unchanged from predictions for 2023.
Nevertheless, the UK’s progress is expected to be significantly slower following interest rate hikes aimed at managing inflation. OECD reiterated that “GDP growth is projected to remain sluggish” due to the declining influence of previous monetary tightening measures.
Growth was recorded at 0.1 percent last year, with an improvement to 0.4 percent forecast for this year. However, this represents a drop in projections compared to the initial prediction of 0.7 percent growth for 2024.
Consequently, the UK is set to record the second slowest development amongst the G7 nations, only ahead of Germany, which is predicted to see a meagre increase of 0.2 percent.
On Thursday, a new report indicated that the UK economy is poised for a one percent growth next year, lagging behind Germany and its fellow G7 counterparts Canada, France, Italy, Japan, and the US.
The Organisation for Economic Co-operation and Development (OECD) highlighted that while higher wages might boost consumer spending in the next couple of years, they could also add to inflationary pressures. The Bank of England is striving to reduce Consumer Price Index (CPI) inflation to its target rate of two percent.
“Stronger real wage growth will support a modest pick-up in private consumption,” the OECD’s report noted.
It further stated: “Headline inflation is expected to continue moderating towards target as energy and food prices have eased substantially, but persistent services price pressures will keep core inflation elevated at 3.3 percent in 2024 and 2.5 percent in 2025.”
Moreover, the report forecasts that the Bank of England’s Monetary Policy Committee (MPC) will begin to lower interest rates from their current 15-year peak of 5.25 percent in the third quarter of this year.
Interest rates in the UK are projected to decrease to 3.75 percent by the end of 2025, according to the OECD.
At the same time, the UK’s jobless rate is anticipated to climb during this period.
Contrary to expectations, the unemployment rate rose to 4.2 percent in the three months leading up to February.
The OECD warns that this trend is set to continue, with predictions of an increase to 4.7 percent by 2025 as the labour market cools down.
Chancellor of the Exchequer, Jeremy Hunt, voiced: “This forecast is not particularly surprising given our priority for the last year has been to tackle inflation with higher interest rates.”
“But, now we are winning that war, growth matters, which is why it is significant that last month the IMF (International Monetary Fund) predicted the UK will grow faster over the next six years than any European G7 country or Japan.”
“To sustain that we need to stick to our plan competitive taxes, a flexible labour market and far-reaching welfare reform.”
