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UK SET FOR FASTER GROWTH IN 2025 BUT HIGH INFLATION TOO, OECD FORECASTS

By Andy Bruce
December 4, 202410:07 AM GMT+1Updated 18 days ago
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People walk across London Bridge during the morning rush hour, with the City of
London's financial district in the background, in London, Britain, April 13,
2023. REUTERS/Henry Nicholls/File Photo Purchase Licensing Rights, opens new tab
Dec 4 (Reuters) - The OECD on Wednesday bumped up its growth forecast for
Britain's economy next year, citing a surge in government spending that is also
likely to push inflation to the top of the G7 charts.
While the Paris-based Organisation for Economic Cooperation and Development
trimmed its expectation for this year to 0.9% from 1.1%, it raised its 2025
forecast for British economic growth to 1.7% from 1.2% previously.
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Excluding wild swings in output that took place during the COVID-19 pandemic,
such an outcome would represent the fastest growth since 2017, with only Canada
and the U.S. forecast to grow faster next year by the OECD.
Finance minister Rachel Reeves welcomed the upgrade, saying it made the UK the
fastest growing European economy in the G7 over the next three years, based on
the OECD's forecasts.
"That is only the start. Growth only matters if it’s matched by more money in
people’s pockets," she said.
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But the OECD warned that the pickup was likely to be fleeting, with growth set
to slow to 1.3% in 2026.
"Government consumption and investment will boost growth in 2025, owing to
front-loaded fiscal loosening, before the increase in taxes starts weighing on
private consumption and additional government borrowing needs crowd out business
investment," the OECD said in its latest global outlook.
Reeves announced big increases to government spending and investment in her Oct.
30 budget, paid for by higher state borrowing and hiking taxes on employers -
something that has dented business confidence.

The OECD said British inflation was likely to average 2.7% in 2025 - higher than
in any other G7 country.
"Domestic price pressures remain," the OECD said, citing strong wage growth
compared with peers and elevated services inflation.
The report showed housing rents in Britain increased during the year to October
by more than in any of the more than 20 OECD countries listed.
With public finances stretched, the OECD warned that Britain had limited
capacity to deal with potential shocks to the economy in future.

"These include increases in global energy prices, given UK households' reliance
on natural gas. Moreover, persistent price pressures on the back of the strong
increase in government expenditure... could require the monetary stance to
remain tighter for longer," the OECD said.

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Editing by Jan Harvey and William Schomberg

Our Standards: The Thomson Reuters Trust Principles., opens new tab

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