UK economy set for highest inflation and close to slowest growth of G7 countries

Thursday, Jun 08, 2023

LONDON: The UK economy will see the highest inflation rate and nearly the slowest growth of the group of seven (G7) advanced economies this year, according to new analysis.Inflation in Britain is forecast to average at 6.9 per cent for 2023, the Organisation for Economic Co-operation and Development (OECD) found.Clare Lombardelli, the OECDs chief economist, said: “Inflation in the UK is higher and proving to be higher than other countries at the moment.”She said this was partly due to high labour costs as wages rise, and the fact that Britain is more exposed to high global energy prices.

“In our projections it is expected to see faster fall in inflation, which is set to return in 2024 towards target”, she added, with the rate set to drop sharply to average 2.6 per cent next year.The economy will just about eke out growth this year with a recession no longer in the immediate outlook. The OECD expects gross domestic product (GDP) to edge up by 0.3 per cent in 2023 before improving moderately to 1 per cent growth in 2024.

It is an upgrade from the previous report, in March, which had estimated GDP would fall by 0.2 per cent this year.Only Germany, which fell into a recession over the start of the year and is set to stagnate throughout 2023, will perform worse than the UK, according to the new projections.In contrast, as the best performer in the G7, the US is set for growth of 1.6 per cent this year, while inflation will ease to a significantly lower 3.9 per cent.

“The global economy is turning a corner but faces a long road ahead to attain strong and sustainable growth”, Ms Lombardelli added.Falling energy prices and headline inflation, easing supply bottlenecks and the reopening of China’s economy, and strong employment and relatively resilient household finances have all contributed to a projected recovery, she said.

Responding to the outlook, UK Chancellor Jeremy 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 while inflation is still too high, we must stick relentlessly to our plan to halve it this year. That is the only long-term way to grow the economy and ease the cost-of-living pressures on families.”The Paris-based OECD stressed that women’s skills are not being fully utilised in the labour market, because they disproportionately work part-time due to caring duties.

It urged that the Government’s new childcare measure be “implemented swiftly” to improve participation in the national workforce – which offers 30 hours a week of free childcare for working parents of children aged nine to 24 months.The policy is not due to come into effect until 2024, and may not be fully in play until September 2025.The OECD also said that energy support should be gradually withdrawn, except for measures supporting vulnerable households