OECD forecast no longer shows UK economy as G7 laggard

OECD upgrades UK 2024 growth forecast to 1.1% from 0.4%

By Reuters

Published: Wed 25 Sep 2024, 5:00 PM

The OECD sharply upgraded its ranking for British economic growth this year and in 2025 on Wednesday, after previously predicting Britain would have the weakest growth of any Group of Seven country.

The Paris-based Organisation for Economic Cooperation and Development forecasts Britain’s economy will grow by 1.1 per cent in 2024 and 1.2 per cent in 2025, up from previous forecasts of 0.4 per cent and 1.0 per cent, and similar to Bank of England forecasts last month.

The OECD’s broader global update to its forecasts now places Britain’s growth rate close to most other Group of Seven countries this year and next, though behind that of the United States.

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The higher UK growth forecast was first published in a country-specific report two weeks ago.

Britain’s economy grew faster in the first half of 2024 than most forecasters had predicted, prompting upgrades for this year’s growth by other organisations including the Bank of England.

“Faster economic growth figures are welcomed, but I know there is more to do and that is why economic growth is the number one mission of this government,” finance minister Rachel Reeves said in response to the latest OECD report.

The centre-left Labour Party won a sweeping election victory in July.

Reeves has hinted that she will change the government’s fiscal rules for bringing down public debt, potentially paving the way for more borrowing in a bid to speed up economic growth.

The OECD said the self-imposed targets - including a commitment to put debt as a share of economic output on a downward trend in five years’ time - needed changing.

The rules impeded large-scale public investment with longer planning horizons without succeeding in stopping the overall debt burden from rising, it said.

“The UK needs more investment, and so we need to create fiscal space in order to do so,” OECD Chief Economist Alvaro Santos Pereira said in a press conference.

The OECD also criticised an “overly stringent and complex” planning system for blocking business and housing investment, as well as regional disparities in infrastructure spending and a rise in labour market inactivity since the pandemic.

The OECD continued to predict that Britain would have the highest inflation of any G7 country in 2024 and 2025 at an average of 2.7 per cent in 2024 and 2.4 per cent in 2025, little changed from its previous forecast.

British inflation was 2.2 per cent in August, just above the central bank’s 2 per cent target, but the central bank expects it to rise due to big increases in the cost of domestically produced services and the fading effect of last year’s fall in energy costs.