UK economic growth to remain 'sluggish' - OECD

UK growth is set to remain sluggish this year, a leading economic organisation forecast on Thursday, weighed down by restrictive monetary policy.

According to the latest economic outlook from the Organisation for Economic Co-operation and Development, GDP is expected to grow by 0.4% in 2024 and by 1.0% in 2025.

That is down on its previous forecast for the UK, for growth of 0.7% in 2024 and 1.2% in 2025. It is also below forecasts made by the Office for Budget Responsibility earlier this year, for growth of 0.8% in 2024 and 1.9% in 2025.

The OCED said the "sluggish" growth forecast reflected a "waning drag from past monetary tightening".

Headline inflation was forecast to continue moderating, as energy and food prices fall. But the Paris-based thinktank expects persistent services price pressures to keep inflation above the Bank of England’s 2% target, at 3.3% in 2024 and 2.5% in 2025.

It said: "The fiscal and monetary policy mix is adequately restrictive, and should remain so until inflation returns durably to target.

"Fiscal policy should remain prudent and focus on productivity-enhancing public investment when the monetary stance normalises.

"Reforming property taxation can help rebuild fiscal buffers and promote both efficiency and progressivity."

In common with central banks around the world, the BoE has increased rates 14 times since the end of 2021, to 5.25%, as it looked to tackle surging inflation.

With inflation falling back, however, the cost of borrowing has now been left on hold since August 2023.

Most analysts expect the next move from the BoE will be a cut.

It is not yet known if the government will have another budget or fiscal statement before the next general election, which must be held by January 2025 at the very latest.

Globally, the OECD expects GDP to grow by 3.1% in 2024, unchanged on 2023, before edging up modestly in 2025, to 3.2%.

The body said: "The impact of tight monetary conditions continues to being felt, particularly in housing and credit markets, but global activity is proving relatively resilient, the decline in inflation continues and private sector confidence is improving."

Among individual countries, GDP in China was forecast to grow by 4.9% this year and 4.5% in 2025; by 2.6% in the US and 1.8% next year; and by just 0.2% in 2024 and 1.1% in 2025 in Germany. GDP in the Eurozone as a whole was forecast to grow by 0.7% this year and 1.5% next year.