THE UK economy is set for the second-slowest growth of the world’s G7 advanced economies, according to new forecasts.
The Organisation for Economic Co-operation and Development (OECD) has reduced its forecast UK growth rate for 2024.
Growth across the global economy has been stronger than expected but is beginning to slow as higher interest rates, weaker trade and lower business and consumer confidence take a toll, economists for the organisation said.
Britain is forecast to have the slowest gross domestic product (GDP) this year and next year, other than Germany, of the G7.
The G7 also incorporates France, Italy, the US, Canada and Japan.
UK GDP is expected to be 0.5% this year, higher than the OECD’s September forecast of 0.3% for 2023.
It is then set to increase slightly to 0.7% across next year, a downgrade from 0.8% projected growth in the previous forecast, before averaging at 1.2% over 2025.
Meanwhile, Britain is also set for the highest inflation rate across the G7 this year, averaging at 7.3% for 2023, up from its previous forecast of 7.2%.
It comes despite the Prime Minister declaring victory on his pledge to halve inflation by the end of the year, after Consumer Prices Index (CPI) inflation dropped sharply last month to its lowest level in two years.
Energy costs rose at a much slower rate last month compared to October last year, when the energy price cap was higher.
A slowdown in inflation, which is forecast to average at 2.9% in 2024 and 2.5% in 2025, and rising wages are expected to boost spending in the UK.
But higher borrowing costs are weighing on the housing market and business investment, and a greater tax burden is squeezing household incomes, the OECD said.
Prime Minister Rishi Sunak said the economic “momentum” that has helped the UK avoid a recession this year is continuing.
He told the Commons on Wednesday: “A year ago not just the [Office for Budget Responsibility] but the Bank of England, the [International Monetary Fund] and the OECD were all predicting that we would fall into a recession this year, but thanks to the actions of this Government and this Chancellor we have actually grown the economy.
“You have seen that momentum carry on just in the past week, with the announcement of Nissan, but also the summit that we hosted attracting £30 billion of new investment into the UK.”
The Bank of England kept interest rates at 5.25% earlier this month, and has insisted that it is too early to think about cutting rates.
Heightened geopolitical tensions are also adding to uncertainty about the outlook in the near term, with the Israel-Hamas conflict raising concerns over disruption to energy markets and trade routes, according to the top economists.
In its report, the OECD said: “Growth in the major European economies, which have been relatively hard-hit by the energy price shock in 2022 and the war in Ukraine, is expected to remain weak in the near term but improve gradually as inflation wanes, monetary policy easing gets underway and real incomes recover.
“In the United Kingdom, GDP growth is projected to be subdued, with higher fiscal pressure weighing on household disposable incomes, but to improve from 0.5% in 2023 to 0.7% in 2024 and 1.2% in 2025.”
SNP economy spokesperson Drew Hendry MP said: “Scotland’s future under Westminster control looks grim with inflation set to remain high and the UK set to be the worst performing of all advanced economies in the G7 bar Germany. “Scotland needs to escape the endless austerity and incompetence of Westminster governments we don’t vote for and become an independent country inside the EU.
"It is the only way to grow our economy and protect household budgets."
A Treasury spokesman said: “While many predicted recession, the OECD – like the Bank of England and the International Monetary Fund – has upgraded the UK’s growth this year.
“While inflation is falling, now we are taking the long-term decisions needed for growth.”
