Last week, the Organisation for Economic Co-operation and Development (OECD) raised its growth and inflation outlook for the United Kingdom. This shift is the result of both sustained economic hardship and changes in consumer habits. The start of the trend The TCA’s latest quarterly report, released this month, predicts UK inflation will peak 3.5% this year. This is a significant jump from their November 2022 projection of 3.1%. This change happens as the UK is experiencing unprecedented increases in food prices, putting pressure on families up and down the country.
The OECD has raised its economic growth prediction for the UK. It has since revised its growth forecast to 1.4% for this year, an increase from the 1.3% prediction made in July. This major technological upgrade cements the UK’s place as one of the G7’s fastest growing economies. Chancellor Rachel Reeves announced that this proves the British economy is “the comeback economy,” adding that it has beaten growth in all other G7 economies during the first half of the year.
The OECD’s report highlights that inflationary pressures are “becoming increasingly visible in spending choices, labour markets and consumer prices.” These pressures mainly due to inflationary increases in food prices, which have quickly become a top-of-mind issue for families.
With the UK government getting ready for a November Budget announcement, Chancellor Reeves will need to make some tough choices over fiscal policy. Reeves wants to include tough rules on government borrowing. Analysts expect her to either raise taxes or cut spending, given the need for an economic stabilizer.
We know the global economic climate is incredibly challenging at the moment. Lingering impacts from the US tariffs implemented under former President Donald Trump are largely to blame. These tariffs, the OECD said, are still hampering future growth potential both in the US and around the world. As the report pointed out, businesses rushed to complete deals before the tariffs started hitting. This madness created an artificial boom in economic activity during the first half of this year. The “front loading” of the stimulus activity is starting to wane. This late-cycle trend points to growth weakening in the second half of 2023.
“Growth is expected to soften noticeably in the second half of this year, as front-loading activity unwinds and higher effective tariff rates on imports to the United States and China dampen investment and trade growth.” – OECD
Despite these challenges, the United States has enjoyed a growth revolution powered by smart investments. The technology sectors, and especially Artificial Intelligence (AI), have been the backbone of this robust advancement. The OECD as a result raised its growth projection for the US by two-tenths of a percentage point to 1.8% from 1.6%. Other economists are more skeptical, cautioning that new import tariffs might increase costs for American consumers.