The squeeze on real wages in Britain is set to last at least until Christmas with inflation remaining the highest among key major economies, leading economists warned on Wednesday.
The Organisation for Economic Co-operation and Development predicted that the UK’s headline inflation rate was set to be 6.9 per cent in 2023, higher than Germany’s 6.3 per cent and France’s 6.1 per cent and the OECD average of 6.6 per cent.
It also stressed that pay, once inflation is taken into account, would “stagnate” for 2023, before eventually increasing the following year as price rises ease.
The Paris-based think tank also warned that Chancellor Jeremy Hunt’s freeze on income tax thresholds would “significantly increase fiscal pressure on households”.
It also put banks in the dock for hiking mortgage rates faster than saving rates.
In some moderately good news for the Chancellor, it upgraded its economic forecasts from March for the UK, but still only to a miserly growth rate.
GDP is now predicted to grow by 0.3 per cent in 2023, and then one per cent the following year, compared to the March forecast of a 0.2 per cent contraction this year, followed by 0.9 per cent growth in 2024.
But all other economies in the G7 group of wealthy nations apart from Germany - the US, Canada, France, Italy and Japan - are expected to grow at faster rates this year, showing Britain is lagging behind on the international stage.
The OECD also warned that given the “restrictive fiscal stance” needed to bring down high inflation, and the level of public debt, the Government remained “significantly exposed to movements in interest rates”.
So, it should “swiftly” push ahead with moves announced in the Spring Budget to get more people, including parents of young children, individuals on benefit and the over 50s, back into work through a series of measures include better childcare provision.
The OECD June report was written after figures showed inflation in Britain falling from 10.1 per cent in March but only to 8.7 per cent in April.
But with inflation having outstripped most wage rises in recent months, it said: “Real wages will stagnate in 2023, as a gradual easing of labour market conditions limits nominal wage growth, before eventually increasing in 2024 thanks to lower inflation.
“Unemployment will increase steadily to about 4.5 per cent as growth remains subdued.”
Mr Hunt said: “Today’s report boosts our growth forecast, praises our action to help parents back to work with a major expansion of free childcare, and recognises our cuts to business taxes which aim to drive investment.”
But Liberal Democrat Treasury spokesperson Sarah Olney said: “This is a damning verdict on the Government’s economic record.”
