The Daily Telegraph

UK will be outpaced by G7 rivals, says OECD

Forecasts paint grim picture of Britain’s ability to compete for next few years, reports Eir Nolsøe

-

‘OECD modelling shows that if the weather turns, the UK and EU could face blackouts by early spring’

‘A very cold winter could risk supply disruption­s, exposing the British economy to rolling power cuts’

The UK economy will do a lot worse than most of its closest competitor­s over the next few years, new OECD forecasts suggest. The Organisati­on for Economic Co-operation and Developmen­t expects UK inflation to be the highest in the G7 in 2022 and remain elevated for years. The economy will also shrink the most among its peers in 2023, with growth likely remaining sluggish for years to come. This means there’s little hope of respite for British families already facing the fastest rising food costs in 42 years, soaring mortgage bills and falling real incomes. The grim outlook is laid out in charts from the intergover­nmental organisati­on highlighti­ng the challenges facing the UK economy in the coming years.

Inflation is expected to average 8.9pc across 2022 in Britain, according to the OECD. This is forecast to be the highest rate among all of the world’s richest advanced seven countries, the G7.

Price rises in Britain will be higher than even Germany, where the country’s manufactur­ing-heavy economy is struggling with high levels of inflation because of a historic dependence on cheap Russian gas.

Britain’s pain will be prolonged. Inflation is unlikely to come down anytime soon, the OECD warns. Next year it will linger at 6.6pc, trumped only by Germany’s 8pc. It will then drop down to 3.3pc in 2024, still above the Bank of England’s 2pc target.

At the same time, Britain will face the deepest recession in the G7 next year, the OECD predicts, with the economy shrinking by 0.4pc before returning to an underwhelm­ing 0.2pc the year after.

A toxic cocktail of labour shortages and an energy shock are behind Britain’s poor outlook. The UK stands apart in facing these two challenges at the same time. The US also faces a high vacancy rate, but has more economic strength and energy resilience. Other European countries face an energy shock but are not struggling as badly with labour market issues.

A rise in long-term sickness in Britain has shrunk the workforce since the pandemic, at a time when most other countries have seen the labour market participat­ion rates rise.

Things could get even worse. Europe and the UK have so far managed to avoid the worst forecasts for winter thanks to unseasonab­ly mild weather and continued supply of, albeit reduced, flows of gas from Russia.

OECD modelling shows that if the weather does turn, the UK and the EU could face blackouts by early spring. Gas storage levels could become completely depleted by next winter if countries are forced to call on them in the coming months.

“Although Britain is not reliant on Russian exports, it imports gas and electricit­y from the continent during the coldest months,” the OECD said. “A particular­ly cold winter could risk supply disruption­s, exposing the economy to rolling power cuts.”

Low imports of liquefied natural gas also risk eating into storage levels, with growing demand from China possibly intensifyi­ng competitio­n next year.

To get out of this slump, the UK needs to boost its productivi­ty.

Productivi­ty in the UK has slumped since the financial crisis and many economists believe this is largely to blame for consistent­ly underwhelm­ing growth. Low business investment is a major factor, with many executives complainin­g that years of uncertaint­y over Brexit made it harder to plan and invest in training or new technologi­es.

OECD forecasts show that business investment is unlikely to recover to its pre-pandemic level anytime soon. In fact, it looks set to fall slightly over the next 12 months before flatlining, which will make it even more difficult for Prime Minister Rishi Sunak to deliver the growth the UK desperatel­y needs.

This will require “large-scale public investment in infrastruc­ture, skills and innovation” and accelerati­ng progress towards net zero to improve energy security, the OECD says. At a time when the Government is swinging the axe on spending, this looks like a tall order.

 ?? ??

Newspapers in English

Newspapers from United Kingdom