The UK economy is set to deliver the worst performance of all G7 countries next year, according to a forecast from the OECD.
In its latest global economic outlook, the international trade organisation said the UK’s economy will contract by 0.4 per cent in 2023 - more optimistic than the Office for Budget Responsibilty’s estimate of 1.4 per cent of negative growth - but still worse than any other major economy.
It had predicted in September that UK growth would flatline in 2023.
Latest GDP figures showed the UK economy contracted by 0.2 per cent in the three months between July and September. Britain is expected to slide into recession - two successive quarters of negative growth - by the end of this year.
But Britain’s recovery is also set to be weak with the OECD saying Britain’s economy will only grow by 0.2 per cent in 2024.
“Risks to the outlook are considerable and tilted towards the downside,” the OECD said.
Germany’s economy is the only other G7 nation set to shrink (by 0.3 per cent) but every other economy is set to grow next year with Japan forecast to increase GDP by 1.8 per cent, Canada by 1 per cent, the US by 0.5 per cent, France by 0.6 per cent and Italy by 0.2 per cent.
Explaining the UK’s laclustre economic performance, the OECD added: “Reduced purchasing power and tighter monetary policy are expected to take a toll on consumer spending and rising long term interest rates will lead to a slow down in the housing market.
“Business investment will remain subdued...due to a higher cost of capital and lingering uncertainty.”
The OECD’s analysis comes days after Chancellor Jeremy Hunt announced £25bn of tax rises and £30bn of spending cuts in a bid to plug a black hole in the public finances and get debt falling as a proportion of GDP - also known as economic output - in the next five years.
New figures released earlier on Tuesday showed borrowing figures rose to £13.5bn in October - the fourth highest October figure on record.
The OECD’s report also showed the UK is the third worst performing nation of all the G20 advanced countries worldwide, with only Russia and Sweden seeing a bigger decline in GDP, at 5.6 per cent and 0.6 per cent.
When compared with the average of all the world economies, the UK's performance is set to trail behind the 2.2 per cent in global growth predicted for next year, but this is still a sharp slowdown on the 3.1 per cent expected in 2022 due to the energy crisis and trading sanctions sparked by Russia's war on Ukraine.
The OECD also took aim at the UK Government's support efforts to cap energy bills at around £2,500 until April, saying it will push up inflation and mean households and businesses will be hit by higher interest rates as a result as policymakers look to rein in price and wage rises.
It said: "The untargeted Energy Price Guarantee announced in September 2022 by the Government will increase pressure on already high inflation in the short term, requiring monetary policy to tighten more and raising debt service costs.
"Better targeting of measures to cushion the impact of high energy prices would lower the budgetary cost, better-preserve incentives to save energy, and reduce the pressure on demand at a time of high inflation."
