Rishi Sunak has been urged by one of the world’s leading economic authorities to cut taxes or increase spending in the face of impending stagnation next year.
The UK is poised for the world’s weakest economic growth next year, according to new forecasts from the Organization for Economic Co-operation and Development.
In its latest comprehensive forecasts for the world economy, the OECD, a club of developed nations, predicted that the British economy would stagnate, with no gross domestic product expansion over 2023, a worse result than for any other OECD member.
He said the chancellor should “consider slowing fiscal consolidation to support growth.”
The intervention comes as the chancellor faces growing pressure from the prime minister and fellow cabinet ministers to cut taxes, even after he had given more support to households in a new package last month.
The OECD said that even after considering this package – which included an extraordinary tax on energy companies – the UK’s “fiscal position”: the combined impact of all government decisions on taxes and spending remained “contracted.”
The report warned that while the UK’s economic outlook was particularly poor next year, all countries in the world had been adversely affected by the impact of the war on Ukraine, saying: “The world is willing to pay a high price for Russia’s war against Ukraine. “
He said his inflation forecast had doubled from his previous pre-war forecast and that global gross domestic product would increase by 3% in 2022, compared to his pre-war forecast. 4.5%.
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He added that one of the main risks facing the world now is food shortages.
“The first urgency is to avoid a food crisis,” he said in the report. “Today the world produces enough grain to feed everyone, but the prices are very high and the risk is that this production will not reach those who need it most.
“Global cooperation is needed to ensure that food reaches consumers at affordable prices, particularly in emerging and low – income economies.
“This may require further international assistance, as well as cooperation in shipping and distribution logistics to countries in need.
“Defects in the global vaccine distribution are still fresh in our memory. We do not repeat them.”
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He also warned that cost-of-living crises would be widespread around the world, which in turn could widen the gap between rich and poor.
Chief economist Laurence Boone said: “Inflation is a burden, which must be shared fairly between people and businesses, between profits and wages. Governments must also play a role through support for those most vulnerable to rising food and energy inflation. “
The OECD analysis showed that while there were significant gaps in inflation felt by the richest and poorest households (the latter tend to face higher costs), the gap in the UK was larger than in most other OECD nations.
Commenting on the OECD warning in the United Kingdom, a Treasury spokesman said: “Thanks to the support we provided during the pandemic, the United Kingdom had the fastest growth of the G7 last year and our rate of Unemployment is the lowest in nearly 50 years, but we recognize that many people will be concerned about these forecasts.
“While we cannot completely isolate the UK from global pressures, our economy is in a strong position to meet these challenges. We have a growth plan and we are supporting people with the cost of living.” .