Rishi Sunak has suffered a major blow as a major international forecast showed that Britain is set to suffer the highest inflation and the second-slowest growth rate in the G7.
The Organisation of Economic Co-Operation and Development (OECD) has slashed its economic growth forecast for the UK while increasing its expected inflation rate.
The forecaster said the UK economy will grow by just 0.5 per cent this year – making it the worst-performing of all advanced economies in the G7 group bar Germany.
Growth will average just 0.7 per cent next year – downgraded from an earlier forecast of 0.8 per cent – followed by an expected economic uptick to 1.2 per cent in 2025.
Inflation – the rate at which prices are rising – is set to average 7.3 per cent across this year, compared with an earlier forecast of 7.2 per cent. It is then expected to fall to 2.9 per cent next year, and 2.5 per cent the year after.
The figures represent a big setback to Mr Sunak and chancellor Jeremy Hunt just a week after they claimed the economy had “turned a corner”. After cutting personal taxes in a pre-general election giveaway, the PM had claimed that there is “positive momentum” behind the recovery.
In its report, the OECD said growth in the major European economies “is expected to remain weak in the near term but improve gradually as inflation wanes, monetary policy easing gets underway and real incomes recover”.
The organisation said GDP growth in the UK is “projected to be subdued, with higher fiscal pressure weighing on household disposable incomes”.
Rishi Sunak and Jeremy Hunt cut taxes at the autumn statement in the hope of boosting growth— (PA)
Rachel Reeves, the shadow chancellor, said the OECD figures “blow a hole in Rishi Sunak’s claims that he has fixed the economy”. She said Britain was “worse off after 13 years of economic failure under the Conservatives, with low growth, high tax and prices still rising in the shops”.
Sarah Olney, Treasury spokesperson for the Liberal Democrats, said the Tory government had “condemned the UK to near the bottom of international league tables with all their chaos”, adding: “Jeremy Hunt has no plan to fix this mess.”
Mr Hunt denies his tax cuts, including 2 per cent off national insurance rate, were based on “implausible” public spending plans – telling MPs on Wednesday that the reductions would help boost growth and the exchequers coffers.
The chancellor refused to commit to maintaining a freeze in fuel duty, saying he would “look at that decision again” in the run-up to next year’s budget. And he told the Treasury select committe that the UK would not be returning to its aid-spending target within the next five years.
Pranesh Narayanan, research fellow at IPPR think tank, said the OECD forecast suggested that Mr Hunt “hasn’t moved the dial” with his autumn statement. The National Institute of Economic and Social Research (NIESR) said the new forecast was “in line with our view, which is that there will be slow growth without a recession”.
Senior economist Ahmet Kaya said: “UK investment has consistently lagged behind that of other advanced economies, contributing to slower productivity growth and a stagnant economic outlook.”
The OECD’s grim forecast comes after the governor of the Bank of England Andrew Bailey said the UK’s growth outlook is the worst he has ever seen. Mr Bailey offered a scathing assessment of the coming months, saying interest rates will remain at 15-year highs of 5.25 per cent for the foreseeable future.
Keir Starmer and Rachel Reeves claim Labour is the ‘party of growth’— (PA)
There were some encouraging figures on the housing market from the Bank of England on Wednesday, however. The number of mortgages approved picked up last month after interest rates were held steady.
Bank of England figures showed that 47,400 mortgages were approved for house purchases in October, up from the eight-month low of 43,300 recorded in September.
Jason Tebb, chief executive of property platform OnTheMarket, said: “Borrowers are daring to believe that base rate may have peaked, giving them a better idea of where they stand and what they can commit to when it comes to a property purchase.”
The OECD warned that the concerted push by central banks to tackle persistent inflation risks tipping Britain and other major economies into recession next year. The body said the chances of getting the balance on interest rates wrong was “pretty high”.
The organisation also suggested that Mr Sunak and Mr. Hunt should scrap its pensions triple-lock promise – the pledge to raise by whatever is highest from inflation or wage growth – to help pay for net zero policies. No 10 said the government remained “committed” to the triple lock.
A Treasury spokesperson said: “While inflation is falling, now we are taking the long-term decisions needed for growth. As the chancellor set out at the autumn statement last week, we are making sure work always pays and backing businesses to invest.”
Meanwhile, the competition watchdog has found that three in four big food companies that make branded baked beans, mayonnaise, infant formula and pet food have hiked their prices faster than their costs have gone up during the cost of living crisis.
The Competition and Markets Authority (CMA) said on Wednesday that most of the food price inflation in recent years has been driven by the rises in costs that companies have faced. But it said there was evidence that some branded producers were adding extra profits on top of the price rises.
