The OECD’s most recent economic forecast, released yesterday (25 September), has significantly upgraded the UK’s 2024 growth prospects, putting it on track for faster growth this year than several other G7 economies, including Japan, Italy and Germany.
This reflects a turnaround from May’s forecast, in which the UK had been set to show the weakest growth among the G7 economies.
‘Robust’ growth
The UK’s 2024 growth figure was upgraded from a May figure of 0.4% to 1.1%, with British economic growth described as “robust” in the OECD’s forecast.
The new figures tie the UK with France and Canada, just behind the US for fastest growth among the group’s nations.
However, the OECD’s chief economist, Álvaro Pereira, did warn that the UK, along with many other European countries, needs to reduce its debt levels in order to continue this trajectory. This warning followed an ONS data release earlier this week (20 September) showing that debt has hit 100% of GDP, as current expenditure, especially on social benefits, rose.
Pereira said that “fiscal prudence is necessary” but cautioned against “introducing draconian austerity”.
Labour pledges
The forecast follows this week’s Labour Party annual conference in Liverpool, where chancellor Rachel Reeves promised growth derived from attracting greater investment into the UK and a drive towards building new infrastructure projects.
However, much of Reeves’ and prime minister Sir Keir Starmer’s rhetoric since entering government in July, including claims of a £22bn “black hole” in the public finances requiring “tough” measures to fix, has alarmed some commentators.
Many consider the sentiment an echo of former Conservative chancellor George Osborne’s remarks ahead of the series of public spending cuts introduced following the 2008 financial crash and the Conservatives’ 2010 election victory.
The Labour leadership has repeatedly denied a “return” to austerity, while downplaying the extent of tax increases being levied in the Autumn Budget, set to be delivered 30 October.
Other takeaways
The OECD also noted that, to encourage the kind of large-scale public investment Labour has promised, reform of the UK’s “overly stringent and complex” planning system would be necessary, adding that the current system inhibits investment in both business and housing.
While UK growth was praised, the OECD has not substantially revised its inflation forecast for the UK in either 2024 or 2025. The UK is likely to experience the highest inflation rate of any G7 country, with averages of 2.7% and 2.4% predicted for each year respectively.
The inflation rate currently stands at 2.2%, and the Bank of England has lowered interest rates from a 16-year high of 5.25% to 5% in July – suggesting a belief that inflation is stabilising.
