Gloomy Predictions From The OECD

The Organisation for Economic Cooperation and Development (OECD) has predicted that the UK will be the worst-performing economy in the G7 group of countries next year.

High interest rates and restrictive fiscal policy have been forecast to restrict any growth after the (eventual) general election.

The OECD cut its growth outlook for GDP to 0.4% for 2024 and 1% for 2025. This is down from 0.7% and 1.2% from their predictions in March.

The UK is predicted to be the slowest-growing economy this year, and the second-worst in 2025, behind Germany, which is estimated to only grow by 0.2%.

To give some comparison, the world’s largest economy, the USA, is expected to expand by 2.6^ this year, and the ‘Eurozone’ is estimated to have average growth of 0.5% in 2024.

It’s not all doom and gloom, however, as these OECD estimates are lower than those from the IMF and the Office for Budget Responsibility, which were both slightly more positive.

“The more moderate upturn [reflects] a tighter macroeconomic policy mix and somewhat higher inflation in 2024,” the OECD said. The forecasts are based on the current government pledge to reduce the debt burden within the next five years, a policy that will reduce the potential growth of the economy by 1.3 per cent of GDP between 2023-2025. Who knows what will happen once Rishi has finally decided between his Palm Angels sliders or his Sambas and called a general election.

Interest rates are predicted to fall from 5.25% to 3.75% by the end of next year, according to the OECD, so at least there is some potentially better news for borrowers.

Jeremy Hunt responded to the figures: “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 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.”

The OECD does not think that the Government’s 4% reduction in National Insurance will do enough to offset the broader tax rises on households, whose income tax thresholds have been frozen since 2021, causing ‘fiscal drag’.