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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)
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