OECD Predicts UK to be Worst-Performing G7 Economy in 2025

The Organisation for Economic Co-operation and Development (OECD) has cut the UK's growth forecasts, predicting it will be the worst-performing G7 economy in 2025 with just 1% growth. The OECD cites high interest rates, inflation, and staff shortages as the main factors hindering the UK's economic performance, despite an optimistic global economic outlook.

According to the OECD report, the UK economy is expected to grow by a mere 0.4% in 2024 and 1% in 2025, lagging behind other large European economies. The organization suggests that the UK will need to address its economic shortcomings, such as planning rules, skills reform, and public service provision, to boost productivity and resilience.

The OECD also predicts that the Bank of England will start cutting interest rates by the autumn, as inflation continues to converge towards the target. However, rising wages could add to inflation pressures, making it harder for the Bank to lower rates. The UK's unemployment rate is also expected to rise as the labor market cools, although the actual degree of slack remains uncertain.

Why this matters: The OECD's grim forecast for the UK economy highlights the challenges faced by the country in the post-Brexit and post-pandemic era. The UK's economic performance will have significant implications for its global standing, trade relationships, and the well-being of its citizens.

Chancellor Jeremy Hunt acknowledged the OECD's estimates but said the government is "winning the war" against spiralling prices. The opposition parties, however, criticized the government's economic policies, accusing them of being the reason for the UK's economic troubles. The OECD report advises the UK government to remain prudent and focus on productivity-enhancing public investment, while any loosening of the public purse strings should only happen after interest rates have fallen back.

Key Takeaways

• OECD cuts UK's growth forecast, predicting 1% growth in 2025, worst in G7
• UK economy expected to grow 0.4% in 2024 and 1% in 2025, lagging behind Europe
• OECD suggests UK address economic issues like planning rules, skills, public services
• BoE may cut rates by autumn, but rising wages could add to inflation pressure
• UK's economic performance has significant implications for its global standing