OECD says UK will be only big, rich economy to shrink this year

The UK continues to be heading in the right direction to be the one massive rich economic system to register unfavourable development this yr, regardless of an upturn in development prospects, in keeping with new worldwide forecasts.

Projections from the Organisation for Financial Coordination and Improvement (OECD) present that the UK economic system can be an outlier amongst wealthier nations with an annual contraction in development this yr of 0.2 per cent.

That’s 0.2 proportion factors higher than the OECD’s final forecast in November however stays the worst efficiency among the many richest nations.

The OECD’s forecast matches up to date projections from the Workplace for Funds Duty (OBR), which mentioned this week that the economic system would narrowly keep away from a technical recession this yr, outlined as two quarters of unfavourable development. The improved outlook is the results of decrease vitality costs and resilient client and enterprise sentiment recorded this yr. The economic system will expertise a “gentle” restoration of 0.9 per cent subsequent yr, in keeping with the OECD forecast.

Germany, which was anticipated to be the worst-performing economic system within the eurozone, will now report optimistic development of 0.3 per cent reasonably than a 0.3 per cent contraction, in keeping with the OECD, which additionally upgraded its projections for Italy, Spain and France. The only forex space is heading in the right direction to report annual development of 0.8 per cent this yr and international development to fall from 3.2 per cent in 2022 to 2.6 per cent.

The US, the world’s largest economic system, will report development of 1.5 per cent this yr, 0.5 proportion factors higher than the final forecast, earlier than slowing to development of 0.9 per cent in 2024, partly on account of aggressive financial tightening from the US Federal Reserve.

Headline inflation within the UK is heading in the right direction to common 6.7 per cent this yr, in step with the likes of Germany and Italy. The OBR expects client worth inflation to drop to 2.9 per cent by the top of the yr.

The OECD mentioned development internationally economic system would stay beneath pre-pandemic traits however falling inflation would give a much bigger enhance to incomes this yr than anticipated. “The development within the outlook continues to be fragile,” it mentioned. “Dangers have change into considerably higher balanced however stay tilted to the draw back. Uncertainty in regards to the course of the struggle in Ukraine and its broader penalties is a key concern.”

Amid issues over international monetary stability following the collapse of three US banks this week the report warned that additional rate of interest rises may “proceed to show monetary vulnerabilities” within the markets.

Issues in elements of the monetary system in current months, together with the UK’s pension fund disaster, would require central banks to hold out “clear communication” over the shrinking of their steadiness sheets to “minimise the chance of contagion”, the OECD mentioned.

“Increased rates of interest may even have stronger results on financial development than anticipated, notably in the event that they expose underlying monetary vulnerabilities. Whereas a cooling of overheated markets, together with actual property markets, and repricing of monetary portfolios are customary channels by way of which financial coverage takes impact, the complete impression of upper rates of interest is difficult to gauge.”

James Hunt, the chancellor, mentioned: “The British economic system has confirmed extra resilient than many anticipated, outperforming many forecasts to be the quickest rising economic system within the G7 final yr, and is on observe to keep away from recession.

“Earlier this week I set out a plan to develop the economic system by unleashing enterprise funding and serving to extra folks into work, alongside extending our important vitality invoice assist to assist with rising costs, made attainable by our windfall tax on vitality earnings.”

Back To Top