Britain is expected to be the worst-performing economy in the G-20 apart from Russia this year and next, according to new analysis from the Organisation for Economic Cooperation and Development (OECD).
The UK’s GDP is expected to fall by 0.2 percent this year, followed by a rise of 0.9 percent next year, the OECD said in its interim economic outlook published on Friday.
It is worse than all G-20 countries except Russia, whose GDP is forecast to dip 2.5 percent this year followed by a 0.5 percent drop in 2024.
It means that the UK is the only country apart from Russia—which is subject to sanctions as a result of its invasion of Ukraine—to see its economy shrink this year. In 2024 the slight growth in the UK will be on par with South Africa and the United States.
But OECD Secretary General Mathias Cormann said the UK government is taking “very important” measures to tackle its economic problems.
He said, “We believe the measures that the government is taking to address these issues are going to be very important to improve the economic outlook for the United Kingdom moving forward, but there are some particular challenges that are playing out at the moment.”
‘More Resilient Than Many Expected’
Following the OECD’s new forecast, Chancellor of the Exchequer Jeremy Hunt said: “The British economy has proven more resilient than many expected, outperforming many forecasts to be the fastest growing economy in the G-7 last year, and is on track to avoid recession.
“Earlier this week, I set out a plan to grow the economy by unleashing business investment and helping more people into work, alongside extending our significant energy bill support to help with rising prices, made possible by our windfall tax on energy profits.”
But the main opposition Labour Party criticised the “failure” of the Conservative administration to grow the economy.
Labour’s shadow chancellor Rachel Reeves said: “The OECD expect the UK to be the only G-7 economy to shrink this year. It doesn’t have to be like this.
“After 13 years of Tory failure what we need now is the ambition to grow our economy so every part of Britain feels better off.”
‘Technical Recession’ Avoided
The International Monetary Fund (IMF) warned in January that Britain’s economy will slam into reverse this year and will see the worst performance of all the G-7 advanced nations.
In its World Economic Outlook update, the IMF downgraded its UK GDP forecast once again, predicting a contraction of 0.6 percent against the 0.3 percent growth pencilled in last October.
The IMF said Britain’s predicted GDP fall reflects “tighter fiscal and monetary policies and financial conditions and still-high energy retail prices weighing on household budgets.”
Earlier this week, the Office for Budget Responsibility (OBR), the UK government’s official economic forecaster, said the UK economy is expected to shrink less than previously expected.
It said in its latest assessment that the UK will avoid a “technical recession,” which means two consecutive quarters of negative growth.
But it still forecast a contraction of 0.2 percent this year, though it is a significant improvement on the 1.4 percent shrinkage predicted in November.
The OBR also upgraded its growth forecast for 2024 from 1.3 percent to 1.8 percent, but downgraded predictions for the following years to 2.5 percent in 2025, 2.1 percent in 2026, and 1.9 percent in 2027.
It forecast that inflation in the UK will fall from 10.7 percent in the final quarter of last year to 2.9 percent by the end of 2023, partly owing to the impact of the cost-cutting measures.
Living Standards Falling
The OBR also said that living standards are expected to fall by the largest amount since records began, though the decline is not as bad as had been forecast in November.
The forecaster said real household disposable income per person is expected to fall by a cumulative 5.7 percent over the two financial years 2022–23 and 2023–24.
“While this is 1.4 percentage points less than forecast in November, it would still be the largest two-year fall since records began in 1956–57,” the forecaster said.
The OBR said that the UK’s tax burden is expected to reach a post-war high of 37.7 percent of GDP in 2027–28, the highest since the Second World War.
The headline measure of public sector net debt in the UK, which includes the Bank of England, is forecast to reach the equivalent of 103.1 percent of GDP in the financial year ending March 2024.
This would be the highest level since the end of the financial year 1960/61, when debt stood at 107.5 percent.
PA Media contributed to this report.