UK Economy to Lag Behind G7 Peers in 2025, OECD Predicts

The Organisation for Economic Cooperation and Development (OECD) has issued a gloomy forecast for the UK economy, predicting it will be the worst-performing economy in the G7 next year. According to the OECD, high interest rates, persistent price rises, and staff shortages will constrain UK growth, with a projected expansion of just 1% in 2025.

This downgrade comes as a blow to the UK government, which had hoped for a stronger recovery after a tumultuous 2023. The OECD's forecast for 2024 has also been revised downward to 0.4% from 0.7% previously.

In contrast, the US and Canada are expected to lead the G7 in growth, with both economies projected to expand by 1.8% in 2025. Germany is forecast to grow by 1.1%, just ahead of the UK.

The OECD attributes the UK's sluggish growth to persistent price rises in the services sector and ongoing staff shortages, which will delay expected cuts in interest rates. The thinktank advises the UK government to maintain fiscal prudence and focus on productivity-enhancing public investment, warning against loosening the public purse strings until interest rates have fallen.

Chancellor Jeremy Hunt has responded to the forecast, acknowledging the challenges posed by high interest rates but emphasizing the importance of sticking to the government's plan for competitive taxes, a flexible labor market, and welfare reform.

The OECD's forecast diverges significantly from the Office for Budget Responsibility's (OBR) prediction of 1.9% growth in 2025, highlighting the uncertainty surrounding the UK's economic outlook.

Key Takeaways:

- UK economy to be worst-performing in G7 in 2025, according to OECD

- High interest rates, price rises, and staff shortages to constrain growth

- OECD advises fiscal prudence and productivity-enhancing public investment

- UK government committed to its plan for competitive taxes, flexible labor market, and welfare reform

- Significant divergence in forecasts from OECD and OBR highlights economic uncertainty

 

(Courtesy: The Guardian)