UK's Economic Growth Outlook: OECD's Bleak Predictions for 2024-2025

UK Economic Growth Forecasted to Lag Behind All Advanced Nations in 2024

The Organization for Economic Cooperation and Development (OECD) predicts that the UK will experience the poorest economic growth among advanced nations in 2024, with a projected GDP growth rate of only 0.4%. This represents a downward revision from the previously estimated 0.7%. Furthermore, the forecast indicates that the UK's economy will lag behind other advanced nations, including Canada, France, Germany, Japan, and the United States, with an anticipated expansion of merely 1% in 2025. These projections emerge amidst the global economic recovery, with a steady 3.1% growth expected in 2024 and a modest rise to 3.2% in 2025. However, concerns loom regarding the stability of the global recovery, particularly as central banks adopt diverging paths concerning future interest rates. Headline inflation among the OECD's 38 member nations is anticipated to decrease to 5% in 2024 from 6.9% in 2023, with further declines to 3.4% in 2025.

Key Takeaways

• The UK is projected to have the worst economic growth among advanced nations in 2024, at 0.4%.
• The US is expected to have the strongest growth among G7 countries in 2024, at 2.6%.
• The OECD forecasts global economic growth of 3.1% in 2024 and 3.2% in 2025.
• Efforts by central banks to control inflation are yielding success, with headline inflation anticipated to fall to 5% in 2024 and 3.4% in 2025.
• Inflation in major economies is expected to return to target levels of around 2% by the end of 2025.

Analysis

The dismal 2024 growth forecast for the UK could trigger a decline in business investment and consumer confidence, potentially impacting British companies and households. Furthermore, sluggish growth may also influence the government's ability to reduce debt, potentially causing economic instability. The weakened economy might lead to job losses and reduced income, exacerbating social issues.

Diverging interest rate paths adopted by central banks could result in market volatility, impacting financial institutions and investors globally. A global economic downturn might ensue, with potential consequences for export-dependent economies such as Germany and Japan.

While declining inflation is a positive indicator, it could also signify weakening economic momentum, posing challenges for central banks as they balance price stability and economic growth. The slow return of inflation to target levels might dampen investor sentiment, thereby affecting financial markets.

Did You Know?

• OECD (Organization for Economic Cooperation and Development): An international organization consisting of 38 member countries that collaborate to facilitate economic cooperation and development, conduct economic research and analysis, and provide policy recommendations to member countries. The organization's forecasts and reports significantly influence global economic policy.
• GDP (Gross Domestic Product): A metric representing the total value of all produced goods and services within a specified region or country over a particular time frame. It is commonly used to assess a country's overall economic well-being and growth.
• Interest Rates: The expense associated with borrowing money, typically expressed as a percentage of the loan amount. Central banks set interest rates, which significantly impact economic activity. High interest rates can hinder economic activity, while low rates can stimulate borrowing and economic growth. The OECD expresses concerns about the divergence among central banks' efforts to control inflation through interest rates.