OECD says UK will be only big, rich economy to shrink this year

The UK continues to be on the right track to be the one huge rich economic system to register destructive development this yr, regardless of an upturn in development prospects, in accordance with new worldwide forecasts.

Projections from the Organisation for Financial Coordination and Growth (OECD) present that the UK economic system might be an outlier amongst wealthier nations with an annual contraction in development this yr of 0.2 per cent.

That’s 0.2 share factors higher than the OECD’s final forecast in November however stays the worst efficiency among the many richest nations.

The OECD’s forecast matches up to date projections from the Workplace for Finances Duty (OBR), which mentioned this week that the economic system would narrowly keep away from a technical recession this yr, outlined as two quarters of destructive development. The improved outlook is the results of decrease vitality costs and resilient shopper and enterprise sentiment recorded this yr. The economic system will expertise a “gentle” restoration of 0.9 per cent subsequent yr, in accordance with the OECD forecast.

Germany, which was anticipated to be the worst-performing economic system within the eurozone, will now document optimistic development of 0.3 per cent somewhat than a 0.3 per cent contraction, in accordance with the OECD, which additionally upgraded its projections for Italy, Spain and France. The one foreign money space is on the right track to document annual development of 0.8 per cent this yr and world development to fall from 3.2 per cent in 2022 to 2.6 per cent.

The USA, the world’s largest economic system, will document development of 1.5 per cent this yr, 0.5 share factors higher than the final forecast, earlier than slowing to development of 0.9 per cent in 2024, partly on account of aggressive financial tightening from the US Federal Reserve.

Headline inflation within the UK is on the right track to common 6.7 per cent this yr, according to the likes of Germany and Italy. The OBR expects shopper worth inflation to drop to 2.9 per cent by the tip of the yr.

The OECD mentioned development the world over economic system would stay under pre-pandemic tendencies however falling inflation would give an even bigger increase to incomes this yr than anticipated. “The development within the outlook continues to be fragile,” it mentioned. “Dangers have grow to be considerably higher balanced however stay tilted to the draw back. Uncertainty in regards to the course of the battle in Ukraine and its broader penalties is a key concern.”

Amid considerations over world monetary stability following the collapse of three US banks this week the report warned that additional rate of interest rises may “proceed to reveal monetary vulnerabilities” within the markets.

Issues in components of the monetary system in current months, together with the UK’s pension fund disaster, would require central banks to hold out “clear communication” over the shrinking of their stability sheets to “minimise the danger of contagion”, the OECD mentioned.

“Increased rates of interest may even have stronger results on financial development than anticipated, significantly in the event that they expose underlying monetary vulnerabilities. Whereas a cooling of overheated markets, together with actual property markets, and repricing of monetary portfolios are commonplace channels by way of which financial coverage takes impact, the total affect of upper rates of interest is difficult to gauge.”

James Hunt, the chancellor, mentioned: “The British economic system has confirmed extra resilient than many anticipated, outperforming many forecasts to be the quickest rising economic system within the G7 final yr, and is on monitor to keep away from recession.

“Earlier this week I set out a plan to develop the economic system by unleashing enterprise funding and serving to extra folks into work, alongside extending our vital vitality invoice assist to assist with rising costs, made potential by our windfall tax on vitality earnings.”

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