UK economy to grow at sluggish pace - OECD
The UK economy will grow this year and the next, a leading global organisation forecast on Wednesday, but only at a sluggish pace.
According to the latest economic outlook from the Paris-based Organisation for Economic Co-operation and Development, UK GDP growth is projected to pick up from 0.5% this year to 0.7% in 2024 and 1.2% in 2025.
That puts the UK roughly on par with Italy, but behind the US, where GDP is forecast to grow by 1.5% in 2024 and 1.7% in 2025. It is the second lowest forecast in the G7, with only Germany lower.
The OECD said private expenditure was likely to replace government consumption and investment as the main driver of growth in the UK.
But it also noted that while price pressures were set to ease, it expects inflation to remain above target for most of the projection period.
Inflation has fallen back from a record high of 11.1%. But at 4.6% it remains well above the Bank of England’s target of 2%.
The BoE has raised interest rates 14 times since December 2021 as it seeks to tackle inflation. The OECD said monetary tightening was now "working its way through the economy", with GDP estimated to have stagnated in the third quarter after a slight 0.2% expansion in the second.
The OECD expects the Monetary Policy Committee to keep interest rates at 5.25% throughout 2024.
It noted that addressing fiscal challenges was "urgent" for the UK.
It continued: "Maintaining and strengthening current fiscal efforts is essential against the challenging backdrop of high borrowing and debt, and as higher debt interest payments have eroded fiscal headroom.
"Reforming the costly triple lock uprating of state pensions would help."
Globally, the OECD expects "modest" global GDP growth of 2.9% this year, 2.7% in 2024 and 3% in 2025. Asia is expected to account for the bulk of global growth, with China GDP forecast to grow by 4.7% in 2024 and 4.2% in 2025.
Inflation, meanwhile, is expected to ease gradually towards central bank targets in most countries by 2025.
Mathias Cormann, secretary general of the OECD, said: "The global economy continues to confront the challenges of both low growth and elevated inflation, with a mild slowdown next year, mainly as a result of the necessary monetary policy tightening over the past two years.
"Over the longer term, our projections show a significant rise in government debt.
"Stronger efforts are needed to rebuild fiscal space, also by boosting growth."