UK GDP Growth Set to Be Second-Worst in G7 Nations, Predicts OECD

Slow GDP Growth Forecast for UK

According to the latest predictions by the Organisation for Economic Co-operation and Development (OECD), the UK is expected to be second from last amongst the G7 nations in terms of GDP growth this year and the next. The GDP growth rate for 2024 is predicted to be a sluggish 0.4%, which is expected to rise to only 1% by 2025. The only other country projected to perform worse is Germany.

German and UK Economies Stumble

Germany is expected to have a growth of just 0.2% this year, followed by a marginal improvement to 1.1% in 2025. The UK's economy is expected to grow by 0.4% during this year and a moderate increase to 1% in the following year. However, OECD indicates a slight improvement in momentum, with UK GDP rebuilding recently due to recoveries in retail sales and mortgage lending, which have not yet reached the frequencies observed pre-pandemic.

Sticky Inflation Rates

Despite inflation rates seeing a downward trend, they are expected to remain at 3.3% in 2024, with a projected drop to 2.5% in 2025 according to OECD's estimations. The latest Consumer Price Index (CPI) reading was reported at 3.2%, warning that rates could remain stagnant for some time following the US's example. Policymakers are mainly concerned with when to start cutting interest rates, with speculation suggesting the Bank of England could begin easing monetary policies as early as June. This move could bring much-needed relief for homeowners.

Assessment of Monetary Policies

Meanwhile, the OECD anticipates interest rates to start reducing in the third quarter. In this scenario, the base rate could fall from 5.25% to 3.75% by the end of 2025. Conversely, tax receipts are expected to reach historic highs of approximately 37% of the GDP. This is due to the cuts in National Insurance, which only slightly affect frozen income tax thresholds. The projected public expenditure is expected to be 2.9% of GDP higher by 2028/29 compared to pre-pandemic levels.

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