The Organisation for Economic Co-operation and Development (OECD) has significantly upgraded the UK’s economic growth forecast for 2024, positioning it ahead of Japan, Italy, and Germany. In its latest report, the OECD ranked the UK joint second among the G7 nations, trailing only the United States in terms of projected growth. Despite the positive outlook, the UK is forecast to continue grappling with the highest inflation rates in the group.
The OECD described the UK’s economic performance as “robust,” raising its growth estimate for 2024 to 1.1%, up from the 0.4% it predicted in May. The forecast for 2025 remains at 1.2%, as the UK recovers from a mild recession that occurred at the end of 2023. Initially, the May projections placed the UK at the bottom of the G7, but it is now on par with Canada and France, though still behind the US.
However, inflation remains a concern for the UK. Prices, which rose by 2.2% in August, are expected to increase by 2.7% throughout 2024, marking the highest inflation rate among the G7 nations. Inflation is expected to moderate slightly to 2.4% in 2025, but it will continue to grow faster than in other major economies.
The OECD highlighted that the global economy is "turning a corner," with reduced inflation and lower borrowing costs from central banks fostering recovery. These conditions are expected to aid the global economy in bouncing back after the disruptions caused by the COVID-19 pandemic and Russia's invasion of Ukraine.
Álvaro Pereira, the OECD’s chief economist, noted that the strength of the UK’s recovery this year was unexpected, following its recession in 2023. The OECD had previously been one of the more cautious forecasters, predicting that low consumer spending and weak business investment would slow the UK’s growth.
While business investment has indeed remained low, higher wages and lower inflation have contributed to stronger-than-anticipated consumer spending. Pereira emphasized that although the UK’s economy is improving, it still faces the challenge of managing debt. He warned that fiscal prudence is essential, though drastic austerity measures are not required.
On a global scale, the OECD report also noted that trade has returned to pre-pandemic levels faster than anticipated, partly due to shipping companies rerouting around the Red Sea. Despite this, challenges remain, especially for Asian ports, where logistical delays have caused container shipping costs to rise by 160% over the past year.
Food prices are also a persistent issue, particularly for lower-income households. Germany, Europe’s largest economy, has been particularly hard hit, with food price increases outpacing wage growth by 16% since 2019, in contrast to less severe impacts in countries like Australia.
The OECD expressed concern over the potential for rising government debt to strain public finances, especially given high interest rates. Pereira warned that escalating debt could reduce the ability of governments to invest in essential services like health and education, or to stimulate economic growth.
A separate study from the World Economic Forum revealed that many senior economists share these concerns, with more than half worried that high public debt could threaten economic stability or hinder future growth efforts.
