UK Economic Outlook Darkens: OECD Downgrades Growth Forecast
The Organisation for Economic Cooperation and Development (OECD) has delivered a sobering assessment of the UK's economic prospects, highlighting the adverse impacts of high interest rates and lingering inflation from last year. Downgrading its growth forecast for 2024, the Paris-based think tank underscores the challenges facing the UK economy
OECD's Downbeat Forecast:
The OECD's latest report downgrades its forecast for UK growth in 2024 from 0.7% to 0.4%, citing the enduring effects of inflation and high interest rates. This revision paints a bleak picture of the country's economic trajectory, diverging significantly from the more optimistic projections previously put forth.
Factors Dampening Growth:
Persistent price rises in the services sector and shortages of skilled staff are identified as key factors dampening economic growth in the UK. These challenges are expected to drive up wages across various industries, exacerbating the strain on businesses and consumers alike.
Global Economic Trends:
Despite the UK's economic woes, the OECD notes a more positive outlook for the global economy, which is gaining momentum despite geopolitical tensions. Global GDP growth is projected to remain steady at 3.1% in 2024 before edging up to 3.2% in 2025, buoyed by stronger household incomes and declining interest rates.
Policy Recommendations and Fiscal Prudence:
The OECD underscores the importance of fiscal prudence and productivity-enhancing public investment in navigating the economic challenges facing the UK. It calls on Chancellor Jeremy Hunt to prioritize supply-enhancing investments, such as infrastructure and skills development, while exercising caution with public spending.
Bank of England's Role:
The report anticipates a reduction in the Bank of England's interest rates from 5.25% to 3.75% by the end of next year, aiming to stimulate economic activity. However, any fiscal loosening should be contingent upon a decline in interest rates, with a focus on addressing supply constraints and fostering economic growth.
Government Response and Future Outlook:
Chancellor Jeremy Hunt acknowledges the OECD's forecast, emphasizing the government's commitment to tackling inflation while prioritizing economic growth. With the UK projected to outpace other G7 countries in growth over the coming years, Hunt emphasizes the importance of adhering to the government's economic plan for sustained prosperity.
