Growth in the UK is expected to slow to 0.4% in 2023 and 0.2% in 2024.
The UK is a bad student. According to the Organization for Economic Co-operation and Development (OECD), the country is expected to experience the worst economic performance of the rich countries in the G7 over the next two years.
In detail, the institution expects a 0.4% decline in UK gross domestic product (GDP) next year after growth of 4.4% this year, in its latest forecasts published on Tuesday. For 2024, it expects growth of 0.2% in the UK.
However, the organization is more optimistic than the British Budget Forecasting Agency (OBR), which expects -1.4% next year. The Bank of England is even more pessimistic, expecting a contraction of 1.5% next year, followed by a further 1% in 2024.
Although the UK is less dependent than other countries on disruptions in the supply of Russian hydrocarbons, its energy mix is nevertheless heavily dependent on gas, whose prices have risen over a year.
The country also suffers from an acute shortage of workers, mainly due to an increasing number of cases of long-term illnesses, which reduces the active population, but also due to Brexit, which complicates the employment of European workers. More and more business leaders, such as those from the British clothing giant Next or Manchester airport, are criticizing the impact of leaving the EU on immigration and thus on the labor market.
On Monday, the head of the Confederation of British Industry (CBI), the biggest employers’ organisation, asked the government to ease migration rules to welcome more foreign workers and ensure there were not enough arms in the country to meet those needs.
Inflation is currently above 11% in the UK and is expected to gradually fall to 2.7% by the end of 2024, the OECD expects.
The energy support is not targeted enough
The organization also criticizes that the support for energy bills that London has given to the British is not sufficiently aimed at the most needy.
The massive spending generated will “feed inflation” which “will require a greater tightening of monetary policy” and therefore risks weighing even more on activity, the OECD claims.
The organization thus estimates that the Bank of England, which has raised its key rate regularly for several months to counter price rises, should raise it to 4.5% in the second quarter of 2023.
Within the G7, Germany should record 1.8% growth this year and then a 0.3% decline next year, almost as strong as across the Channel, before a 1.5% recovery in 2024, according to the OECD .
By comparison, the US should experience growth of 1.8% this year, then 0.5% next year and 1.0% in 2024.