The UK is set to be the worst-performing economy in the G7 next year, according to the Organisation for Economic Cooperation and Development (OECD), as high interest rates and lingering inflation drag on growth. The Paris-based thinktank downgraded its forecast for UK growth this year to 0.4%, down from 0.7% predicted in November.
In 2025, the UK is expected to grow by just 1%, behind Germany at 1.1%, while the US and Canada lead the G7 with 1.8% growth each. The OECD cited persistent price rises in services and staff shortages as factors delaying interest rate cuts, with the Bank of England likely to hold rates at 5.25% until autumn.
The OECD offered a more optimistic global outlook, projecting global GDP growth of 3.1% in 2024 and 3.2% in 2025, supported by stronger household incomes and lower interest rates. Inflation in G20 economies is expected to ease to 3.6% by 2025 from 5.9% in 2024, with most major economies returning to target by end-2025.
The thinktank urged the UK government to maintain fiscal prudence, focusing on productivity-enhancing investment in infrastructure, the NHS, and adult skills. It warned against loosening public spending until after interest rates fall, predicting the Bank of England will cut rates to 3.75% by end-2025.
Chancellor Jeremy Hunt responded that the forecast was unsurprising given the priority of tackling inflation, but noted the IMF's prediction that the UK will grow faster than any European G7 country over the next six years. The OECD's 2025 growth forecast of 1% is half the 1.9% projected by the Office for Budget Responsibility.
