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British Chancellor Rishi Sunak has been dealt a significant setback with a major global forecast indicating that the UK is expected to experience the highest inflation and second-slowest economic growth among G7 nations.
The OECD has lowered its prediction for the UK’s economic growth and raised its projected inflation rate.
According to the forecaster, the UK’s economy is expected to only grow by 0.5% this year. This would make it the worst-performing economy among the advanced countries in the G7, except for Germany.
The projected growth for next year is now 0.7%, a decrease from the previous estimate of 0.8%. It is then expected to increase to 1.2% in 2025.
The average inflation rate for this year is projected to be 7.3 per cent, slightly higher than the previous estimate of 7.2 per cent. However, it is predicted to decrease to 2.9 per cent next year and further to 2.5 percent the following year.
The statistics indicate a major hindrance for Mr Sunak and chancellor Jeremy Hunt, coming only a week after they proclaimed that the economy had made a positive turnaround. Following a reduction in personal taxes as a pre-election gift, the PM asserted that there is a favorable momentum driving the recovery.
The OECD stated that the primary European economies are projected to have slow growth in the short term, but it should gradually improve as inflation decreases, monetary policy is eased, and real incomes rise.
The organization stated that economic growth in the UK is expected to be restrained, as increased fiscal demands will impact disposable incomes for households.
The opposition’s chancellor, Rachel Reeves, stated that the OECD data undermines Rishi Sunak’s assertions of having resolved the economy. She argued that after 13 years of Conservative rule, Britain is worse off with sluggish growth, excessive taxes, and ongoing price increases in stores.
Sarah Olney, Treasury spokesperson for the Liberal Democrats, said the Tory government had “condemned the UK to near the bottom of international league tables with all their chaos”, adding: “Jeremy Hunt has no plan to fix this mess.”
Mr. Hunt refutes the accusation that his tax cuts, which include a 2% decrease in the national insurance rate, were founded on unrealistic government spending proposals. He stated to members of Parliament on Wednesday that the cuts would contribute to economic growth and increase government revenue.
The chancellor declined to promise to continue the freeze on fuel duty, stating that he will reconsider the decision leading up to next year’s budget. Additionally, he informed the Treasury select committee that the UK will not meet its aid-spending goal in the next five years.
According to Pranesh Narayanan, a researcher at the IPPR think tank, the OECD’s prediction indicates that Mr. Hunt’s autumn statement has not significantly impacted the situation. The National Institute of Economic and Social Research (NIESR) also stated that the forecast aligns with their perspective, which is that there will be gradual growth without a recession.
According to senior economist Ahmet Kaya, investment in the UK has consistently fallen behind that of other advanced economies, resulting in slower productivity growth and a stagnant economic forecast.
The OECD’s bleak prediction comes following statements from Bank of England Governor Andrew Bailey, who stated that the UK’s growth prospects are the most dire he has ever witnessed. Bailey’s evaluation of the upcoming months was harsh, as he declared that interest rates will stay at a 15-year peak of 5.25 percent for the foreseeable future.
On Wednesday, the Bank of England shared positive statistics regarding the housing market. Despite maintaining interest rates, there was an increase in mortgage approvals last month.
According to data from the Bank of England, there were 47,400 approved mortgages for buying homes in October, which was an increase from the previous month’s low of 43,300.
Jason Tebb, chief executive of property platform OnTheMarket, said: “Borrowers are daring to believe that base rate may have peaked, giving them a better idea of where they stand and what they can commit to when it comes to a property purchase.”
The Organization for Economic Cooperation and Development (OECD) cautioned against the unified efforts of central banks to address ongoing inflation concerns, as it could potentially lead to a recession in Britain and other major economies in the upcoming year. The organization stated that there is a high possibility of making a mistake in determining the appropriate interest rates.
The group proposed that Mr. Sunak and Mr. Hunt should eliminate their promise of a triple-lock for pensions – the guarantee to increase based on whichever is higher between inflation or wage growth – in order to fund net zero initiatives. However, No 10 stated that the government is still dedicated to the triple lock.
A representative from the Treasury stated: “Although there is a decrease in inflation, we are currently making the necessary choices for long-term growth. As outlined by the chancellor during the autumn statement last week, we are ensuring that work is always rewarded and supporting businesses in their investments.”
During the current economic struggles, the regulatory agency responsible for overseeing market competition has discovered that 75% of major food corporations producing well-known baked beans, mayonnaise, baby formula, and pet food have raised their prices at a faster rate than their own production costs have increased.
According to the CMA, the majority of food price increases in recent years can be attributed to the rising costs faced by companies. However, there is evidence suggesting that certain branded producers are also increasing their profits beyond these price rises.