OECD Predicts UK to Surpass Germany and Japan in Economic Growth

September 25, 2024 TruthUSA

Before the Autumn Statement, the OECD suggested broader reforms of the UK tax system to prevent unnecessary economic distortions.

Despite outperforming several G7 nations in economic growth forecasts, the UK is projected to have the highest inflation among the group, as indicated in a new report.

The Organisation for Economic Co-operation and Development (OECD) now places Britain joint second in growth predictions for 2024 among G7 nations, with an expected growth rate of 1.1 percent, alongside Canada and France, but behind the United States.

The interim report, released on Wednesday, also forecasts a 1.2 percent growth for Britain’s economy next year. This current estimate contrasts with the OECD’s previous analysis in May, which predicted growth rates of 0.4 and 1.0 percent for 2024 and 2025, respectively.

Despite leading the G7 nations in growth, the forecast for inflation in the UK pushes it to the bottom of the list. The OECD’s prediction of 2.7 percent inflation for 2024 keeps the UK as the country with the fastest-rising prices in the G7.

Next year, Britain’s inflation is expected to rise by 2.4 percent, as per the report.

The current inflation rate stands at 2.2 percent, slightly above the Bank of England’s (BoE) target of 2 percent. The OECD mentioned that ongoing underlying pressures, like the increasing cost of services, could continue affecting the headline inflation rate.

“Services price inflation is still proving particularly sticky and has abated only slowly. If core goods price inflation remains unchanged at the current rate, year-on-year aggregate services price inflation may need to decline by 2.5 percentage points in the United Kingdom,” estimated the economic forum in its report.

It also mentioned that by the end of 2025, most G20 economies are expected to align inflation rates with central bank targets. Core inflation in G20 advanced economies is projected to ease to 2.7 percent this year and 2.1 percent in 2025.

“Declining inflation provides room for an easing of interest rates, though monetary policy should remain prudent until inflation has returned to central bank targets,” said Cormann.

Fiscal Policy and Reforms

Cormann’s suggestions are in line with the position of the BoE, cautious about rapid interest rate reductions. The bank has emphasized maintaining restrictive monetary policy until inflation “sustainably” reaches the 2 percent target.

In September, the BoE kept UK interest rates unchanged at 5 percent, offering no relief to many mortgage payers and first-time buyers.

Addressing “spiraling mortgages” at the Labour Party conference, Chancellor Rachel Reeves promised to “put money back in the pockets of working people.”

Reeves welcomed the faster economic growth figures but highlighted the need for further actions to achieve the government’s goal of boosting the economy. This precedes the October budget, where she is expected to announce cuts to public spending and tax increases.

The OECD recommended Reeves to not just raise taxes but also consider broader reforms to the tax system.

“While raising taxes will help fund necessary spending, the government needs to transition to solutions that make the tax system fairer and more efficient to prevent unnecessary economic distortions, especially related to investment and labor supply,” stated the OECD in its annual economic survey.

Potential reforms suggested by the OECD include updating council tax, eliminating stamp duty land tax, broadening the VAT base, and simplifying the income tax system. Reeves emphasized that next month’s budget will focus on “fixing the foundations” and driving growth.

The OECD predicts robust trade growth in many G20 countries, including the UK, the US, Brazil, India, and Indonesia, leading to a global economic upturn. The forum expects global growth to remain “resilient” at 3.2 percent in both 2024 and 2025.

PA Media contributed to this report.

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