Britain is on the brink of a painful recession as prices continue to rise rapidly and the economy records zero growth next year, according to a new analysis.
The Organisation for Economic Co-operation and Development (OECD) predicted that the UK will be the worst-performing economy of any nation in the developed world apart from Russia in 2023.
The Organisation for Economic Cooperation and Development (OECD) has forecast that the UK is on track to grow more slowly than any major economy in the shadow of the war in Ukraine.
It said the UK was more susceptible to “spill-over effects” from the conflict, including rising energy prices and supply chain disruption.
The OECD added Mr Sunak should “consider slowing fiscal consolidation to support growth”, in a reference to the combination of tax rises and spending restraint which Britain is undertaking to bring down borrowing.
This graph shows how the OECD forecast leaves Britain on the brink of recession.
Britain is experiencing the fastest pace in consumer price growth in four decades, with a 9 percent inflation rate. Economic growth ground to a halt in February and then contracted slightly in March.
The situation is expected to worsen: Inflation will peak above 10 percent this year and the economy will contract next year, the Bank of England forecasts.
The Bank of England (BoE) is warning of a possible recession in the second half of 2022. We expect the country to record GDP growth of no more than 3.5% over 2022.
That average disguises that full-year growth is almost entirely thanks to 2021’s exceptional 7% recovery, and the economic rebound carrying over into the first three months of 2022. Growth in the second half of 2022 will stagnate, and we see the economy picking up to expand less than 1.5% in 2023.
The British government had planned to begin fiscal tightening after Covid. The country’s budget deficit rose during the pandemic to a peacetime record of GBP 318 billion in 2020/21, equivalent to 14.8% of GDP, or GBP 4,800 per UK resident. Public debt as a share of GDP is at more than 94%, its highest levels since 1962/1963.
In response to inflation, the BoE has been the fastest Western central bank in raising interest rates. After four hikes since December 2021, we expect another two of 25 basis points each in June and August. In common with the rest of Europe and the US, the UK is experiencing a tight job market, which may pressure wages to rise further.
The seasonally-adjusted unemployment rate was 3.7% in March, a record low since 1973. Unless wages continue to accelerate, higher interest rates and falling real incomes will undermine economic growth, and so eventually slow inflation
Rising prices are inflicting pain around the world, and recession warnings are flashing in Europe and the United States, but there is a concern that Britain faces more persistent problems as it suffers the worst of the problems in Europe and the United States.
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