UK Economy to Grow Slower Than Previously Predicted, Says OECD

The British economy will grow less than previously predicted this year and flatline entirely in 2023, according to a new report.

The Organisation for Economic Co-operation and Development (OECD) said it has downgraded its current annual projection for the UK economy owing to “declining real incomes and disruptions in energy markets.”

The UK’s GDP is set to grow by 3.4 percent in 2022, rather the 3.6 percent predicted three months ago, the body said in its interim outlook report.

The Bank of England, the UK’s central bank, said on Thursday that it believes the UK economy is already in recession.

The bank had previously projected the economy would grow in the current financial quarter but said it now believes GDP will fall by 0.1 percent.

The OECD also forecast that GDP will stay completely flat in 2023 in the UK, while the G-20 as a whole is expected to see 2.2 percent economic growth.

Germany and Russia are the only two countries in the G-20 set for a weaker economic performance next year, with projections of 0.7 and 4.5 percent declines in GDP respectively, according to the report.

British Chancellor of the Exchequer Kwasi Kwarteng walks outside Number 10 Downing Street, in London on Sept. 6, 2022. (Toby Melville/Reuters)

Plunging Sterling

Last Friday, in an attempt to spur economic growth, Prime Minister Liz Truss’s new government unveiled the biggest package of tax cuts in half a century, funded with more than £70 billion ($75 billion) of increased borrowing.

While the tax cuts were announced one day after the Bank of England increased the cost of borrowing by a further 0.5 percent, Chancellor Kwasi Kwarteng gave no detail regarding how to reduce the UK’s debt as a percentage of GDP, saying the plan would be published in a medium-term fiscal plan “in due course.”

Business leaders welcomed Kwarteng’s so-called mini-budget, but it was seen by critics as a huge gamble as they feared the government is pushing up public borrowing to unsustainable levels.

Kwarteng spooked markets further on Sunday by saying there was “more to come” on tax cuts.

Jittery investors dumped short-dated British government bonds as fast as they could, causing the pound to slump to a record low of $1.03 on Monday morning.

But the pound recovered to stand at $1.09 on Monday afternoon, as speculation mounted in financial markets over imminent emergency action by the Bank of England to steady the pound.

PA Media contributed to this report.