By Ian McConnell
The UK economy will stagnate next year, to be by far the worst-performing economy of the Group of Seven leading industrialised nations in 2023, the Organisation for Economic Cooperation and Development is now forecasting.
The think-tank, highlighting the major detrimental impact of Russia’s invasion of Ukraine on the global economy, declared the UK Government “should consider slowing fiscal consolidation to support growth”. It observed the Boris Johnson administration had already started to tighten fiscal policy.
In December, the Paris-based OECD had projected the UK would grow by 2.1% next year so the new forecast of zero expansion represents a sharp downgrade.
The think-tank projects that, among the G7, the US and Italy will be the joint-second-worst performers in 2023, with growth of 1.2%. It forecasts global expansion of 2.8% next year.
The OECD has cut its forecast of global growth this year from 4.5% to 3%. It has reduced its forecast of UK expansion this year to 3.6%, from 4.7% in December last year, although this would still mean the country would be the second-best performer in the G7, behind Canada, which is projected to achieve gross domestic product growth of 3.8% this year.
It said of the UK: “Fiscal policy has to balance gradual fiscal tightening with well-targeted support to protect vulnerable households from the rising cost of living and significant spending and investment needs to support productivity.”
The OECD added: “The UK economy is susceptible to economic spill-over effects from Russia’s invasion into Ukraine through rising energy prices and supply-chain disruptions. The United Kingdom has limited direct trade and financial linkages with Russia and Ukraine, but higher global energy prices add to the squeeze on household incomes, which are now declining in real terms.”
It observed: “Fiscal policy has started to tighten, with the main pandemic support measures phased out at the end of 2021. Other measures, such as the temporary reduced VAT (value-added tax) rates on hospitality and recreational services, ended on 31 March 2022. To return to a sustainable fiscal path, the Government has committed to a gradual medium-term fiscal consolidation plan, with planned increases in tax revenues and increased investment.”
However, it declared: “The Government should consider slowing fiscal consolidation to support growth.”
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