Britain will join Russia this year as the only major economies likely to contract, the Paris-based Organization for Economic Cooperation and Development says in an updated outlook for global growth.
The organization handed the United Kingdom the joint-biggest upgrade among the Group of Seven countries, but even that won't be enough to stop Britain from being one of the worst economic performers of 2023. The organization predicted a 0.2% drop in gross domestic product for the U.K. this year, followed by a tepid 0.9% rebound in 2024. Those figures respectively were 0.2 and 0.7 percentage points stronger than its November forecasts.
The outlook underlines the pessimistic view international forecasters hold on the U.K. as it struggles with double-digit inflation and a credibility gap after ill-fated fiscal plans last year. The organization's verdict comes after Chancellor of the Exchequer Jeremy Hunt unveiled a "budget for growth" aimed at spurring business investment and improving labor supply.
"The U.K. is facing very strong cost-of-living pressures," organization Secretary General Mathias Cormann said at a news conference. "Retail energy prices increased more than in comparable economies, while wages are not keeping pace with prices."
He also noted there's "continued uncertainty" about the U.K.'s trade relationships, a reference to Britain's decision to exit the European Union, and that hundreds of thousands of people have dropped out of the labor market since the pandemic.
"We do believe the measures the government is taking to address these issues are going to be very important to improve the economic outlook for the U.K. moving forward, but there are some particular challenges that are playing out at the moment," he said.
The figures are more downbeat than those set out by Hunt and the U.K. Office for Budget Responsibility on Wednesday. While the office also expects a 0.2% contraction this year and for the U.K. to avoid a technical recession, it expects a much more rapid 1.8% recovery in GDP in 2024.
The Organization for Economic Cooperation and Development on Friday said the U.K. will have a "mild rebound" next year but noted its struggle to rein in inflation. It said consumer prices will surge 6.7% this year -- more than triple the official target. That's in step with Germany and Italy but only beaten by trouble-prone Turkey and Argentina.
In response to the forecasts, Hunt highlighted the U.K. economy's stronger-than-expected performance in recent months.
"The British economy has proven more resilient than many expected, outperforming many forecasts to be the fastest growing economy in the G-7 last year, and is on track to avoid recession," Hunt said in a statement Friday. "Earlier this week, I set out a plan to grow the economy by unleashing business investment and helping more people into work."
The U.K.'s sluggish 2023 performance compares with growth of 0.8% in the eurozone and a 1.5% expansion in the United States, the organization said. Global growth will ease to 2.6% this year before picking up again in 2024.
Russian GDP is expected to fall 2.5% this year and a further 0.5% in 2024, extending its recession since its invasion of Ukraine in February 2022.
"I'd point to the fact the report itself revises upwards U.K. growth in 2024 more than any other G-7 country, and that's before fully taking account the measures that were set out in the budget by the chancellor earlier this week," Prime Minister Rishi Sunak's spokesperson Jamie Davies told reporters on Friday.
Information for this article was contributed by William Horobin and Emily Ashton of Bloomberg News (WPNS).