Economic growth in the UK will come to a halt next year with only Russia, hampered by Western sanctions, performing worse among the G20’s leading economies, the OECD forecast on Wednesday.
The Paris-based forecast of the organization highlighted the effects of high UK inflation that is still narrowing family and business incomes in 2023, along with a new round of tax hikes as major drivers of the expected weak economic activity in the country.
Forecasts highlight the difficulties a weakened prime minister, Boris Johnson, is likely to face in the coming months as he tries to bolster support for his Conservative party after surviving a censure vote on Monday and showing that the government can handle it. economy effectively.
Speaking about the specific weaknesses of the UK economy compared to other rich countries, Laurence Boone, chief economist at the OECD, said that the UK was unique in simultaneously fighting high inflation. rising interest rates and rising taxes.
“Inflation is high compared to other G20 OECD countries… That’s one thing. The other thing is that there is a rapid monetary tightening that obviously responds. [the inflation] and there is a fiscal consolidation that is the highest in the G7, “he said.
“There’s manufacturing sensitivity in the global supply chain and there’s probably a bit of Brexit as well. [in explaining the poor performance] although we are not really able to unravel each of these factors specifically. ”
The OECD predicted that the UK economy would grow by 3.6% in 2022, although much of this reflected the recovery of the coronavirus late last year.
But that growth would drop to zero next year as households look increasingly cramped. Inflation will remain high and average 7.4% next year after reaching double digits later this year. The OECD said the economy will be “stagnating in 2023 due to depressed demand”.
There were many risks, he said, and most of them would make the situation even worse if they materialized. “Overflows from economic sanctions and higher-than-expected energy prices as the Ukrainian war drags on and a deteriorating public health situation due to new Covid strains are significant downside risks, “the report said.
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He added that higher-than-expected prices of goods and energy could further reduce real incomes and there was no guarantee that the Bank of England could quickly return inflation to its 2% target.
“A prolonged period of acute supply and labor shortages could force companies to a more permanent reduction in their operating capacity or further increase wage inflation,” the OECD said.
The organization said it expected the BoE to raise interest rates from the current 1% to 2.5% as a result of significant inflationary pressure and because it had noticed some “upward derivation” in the expectations of professional forecasters on inflation in the UK. unlike all other advanced economies except the US.