“UK Economy Shows Unexpected Strength Amid Inflation Risks, OECD Upgrades Growth Forecast”

The UK economy faces ongoing concerns over “persistent” inflation, but it has shown “strong” growth, according to a biannual report that raises expectations for both this year and the next. The Organisation for Economic Co-operation and Development (OECD) now predicts a 1.1% growth in UK gross domestic product (GDP) for 2024, a significant improvement from the 0.4% it forecasted in May, and ahead of the euro area’s combined growth rate.

This marks one of the most substantial forecast revisions among the OECD’s 38 member nations. However, the organisation emphasized that global economic risks, including lingering impacts from the COVID-19 pandemic, Russia’s invasion of Ukraine, and ongoing instability in the Middle East, continue to pose challenges.

The upward revision in the UK’s growth forecast reflects stronger-than-expected economic performance in the first half of 2024, allowing the country to emerge from the recession it experienced during late 2023.

The Bank of England’s efforts to combat inflation through higher interest rates, while seen as the cause of last year’s economic contraction, were also acknowledged in the OECD’s report. The organisation noted that wage growth, while slowing, remains a concern for inflation. Services sector price inflation also continues to exert pressure on the economy.

In line with the Bank of England’s cautious approach to further interest rate changes, the OECD projected a moderate GDP growth rate of 1.2% for the UK in 2025. This forecast comes as the new Labour government, led by Chancellor Rachel Reeves, prepares to unveil its first budget on October 30, with a focus on driving economic growth.

Chancellor Reeves welcomed the OECD’s findings, stating, “While the faster economic growth is encouraging, we recognize there is more work to be done. Our upcoming budget will focus on laying the foundation for rebuilding the country and delivering the change we promised.”

In contrast, Germany, Europe’s largest economy, saw its growth forecast downgraded to just 0.1%, largely due to struggles in its manufacturing sector and a slowdown in China, which have weighed on the broader euro area’s growth, which remains at 0.7%.

The OECD also highlighted risks for the global economy, citing persistent geopolitical tensions, potential disruptions in financial markets, and challenges in achieving a smooth disinflation process. However, it also pointed to potential upsides, such as a recovery in consumer confidence and further declines in oil prices, which could accelerate disinflation.

The report concluded by emphasizing the need for decisive fiscal policies to ensure debt sustainability, preserve governments’ ability to respond to future shocks, and meet long-term spending demands. Strengthening efforts to control spending and increase revenue, within credible medium-term adjustment plans, are essential for stabilizing public debt levels.