The Organisation for Economic Cooperation and Development (OECD) predicts the UK will lag behind all other G7 countries in economic growth next year. This sluggish performance is attributed to the lingering effects of high inflation, elevated interest rates, and ongoing skilled labor shortages.
The OECD's assessment is more pessimistic than earlier projections, revising the UK's 2024 growth forecast downward to 0.4% from a previously anticipated 0.7%. In 2025, the OECD projects the UK's growth will reach just 1%, placing it last among G7 nations.
The report notes that stubbornly high prices, particularly in the services sector, along with workforce shortages, will likely delay expected interest rate reductions. As a result, the Bank of England may postpone initial rate cuts from the current 5.25% until the fall.
Despite this outlook for the UK, the OECD paints a brighter picture for the global economy, citing strengthening trends despite ongoing geopolitical tensions. Global GDP growth for 2024 is projected at 3.1%, with stronger household incomes and lower interest rates supporting a modest uptick to 3.2% in 2025.
The OECD recommends Chancellor Jeremy Hunt maintain fiscal prudence, prioritizing productivity-boosting public investment. It advises easing spending restrictions only after interest rates decline, forecasting the Bank of England will lower borrowing costs to 3.75% by the end of 2025.
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