MercoPress. South Atlantic News Agency

UK will have the highest inflation this year among G7 members, OECD report

The Bank of England has put up rates 14 times since December 2021 and is expected to increase them again on Thursday, from 5.25% to 5.5%.

Growth in the global economy is expected to remain “sub-par” next year, according to the Organization for Economic Cooperation and Development (OECD) which cut its forecast for 2024 from 2.9% to 2.7% on Tuesday.

However prices will rise faster in the UK than any other advanced economy this year, OECD has anticipated. UK inflation would average 7.2% in 2023, the highest rate in the G7 group, which includes the US, Germany, France, Japan, Canada and Italy.

However the government said it was confident it was “on the right track to halve inflation” by the end of 2023. It added that the OECD's forecast “illustrates yet again why we need to stick to the plan that we have set out”.

OECD, a globally recognized think tank, raised its forecast for UK inflation by 0.3 percentage points from its previous estimate for 2023.

At 7.2% it will be higher than in Germany and Italy, which are forecast to have rates of 6.1%, France (5.8%), the US (3.8%), Canada (3.6%) and Japan (3.1%).

The UK's latest inflation data for August will be released on Wednesday and is predicted to rise from 6.8% to 7%, after falling steadily in recent months.

Clare Lombardelli, chief economist at the OECD, said the UK had “seen slightly higher inflation than previously expected” and that the Bank of England was “taking the right action in raising rates” to tackle it.

The Bank of England has put up rates 14 times since December 2021 and is expected to increase them again on Thursday, from 5.25% to 5.5%.

The economic theory behind this is that it makes it more expensive for people to borrow money, meaning they will have less excess cash to spend, households will buy fewer things and price rises will ease.
But it's a balancing act as raising rates too aggressively could cause a recession.

The OECD's economists also reduced their economic growth forecast for the UK for next year, due to pressure on households and businesses from higher interest rates.

The think tank added that economic activity had “already weakened” in the UK due to the “lagged effect on incomes from the large energy price shock in 2022”.

It predicts growth of 0.3% in 2023, the second-weakest among the G7, and growth of 0.8% next year.

Darren Jones, Labour's shadow chief secretary to the Treasury said the OECD's economic forecasts “show that the Tories are delivering more of the same”.