UK set for slow economic growth, says OECD

The UK economy will see “sluggish” growth over the next two years, according to the Organisation for Economic Co-operation and Development (OECD).

High inflation and a succession of interest rate rises to 5.25% — a 16-year high — are weighing heavily on the economy, holding back business investment and household spending.

In its latest forecast, the intergovernmental organisation said that UK gross domestic product (GDP) is expected to grow by 0.4% in 2024, a downgrade from its previous estimate of 0.7% growth. This represents the second slowest growth in the G7, behind only Germany.

Next year growth is predicted to pick up to around 1%, the weakest among G7 economies.

“Sticky services price inflation and fiscal drag will continue to weigh on consumers’ purchasing power,” the OECD said. At the same time, soft external demand will constrain trade growth, and uncertainty over when the Bank of England might cut interest rates will “impede business investment”.

However, the OECD also suggested that borrowing costs should remain elevated until price rises come down further.

“The fiscal and monetary policy mix is adequately restrictive and should remain so until inflation returns durably to target,” it said.