OECD Predicts UK Inflation to Surpass Other Major Economies in 2023

According to forecasts from the Organisation for Economic Co-operation and Development (OECD), Britain is expected to have the highest inflation among leading rich economies in 2023. The country’s inflation problem is projected to widen compared to its peers, with a predicted average inflation rate of 7.2% for 2023, up from the previous forecast of 6.9% in June. This revision is the largest increase for any Group of Seven economy, apart from Japan, in the latest set of projections by the OECD. It also surpasses the expected inflation rates for Germany and France, which have been revised down to 6.1% and 5.8%, respectively.

Prime Minister Rishi Sunak has committed to halving inflation by the end of this year ahead of the anticipated election in 2024. To achieve this, inflation would need to decrease from its current level of approximately 7% to around 5% in December compared to the same period last year. The OECD’s updated projections indicate that reaching this target will be a close call, with British inflation projected to slow to 2.9% in 2024, matching France and slightly below Germany at 3.0%.

The British high inflation rate has prompted the Bank of England to continuously raise borrowing costs since December 2021. It is expected that the Bank Rate will be increased once again from 5.25% to 5.5% on Thursday. However, economists and investors believe that this might be the final hike, as the BoE’s efforts to curb inflation risks in an economy that is displaying signs of slowing could be reaching its limit.

The OECD also predicts that Britain’s economy will grow by 0.3% in 2023, unchanged from its June forecast. This performance is the second weakest among rich economies, only surpassing Germany. In 2024, the country’s economy is projected to expand by 0.8%, tied with Italy as the weakest performance among advanced economies.

Finance Minister Jeremy Hunt responded to the OECD’s projections, stating that while the global outlook is challenging, it is positive news that the organization expects UK inflation to drop below 3% next year. The government’s target to reduce inflation and stimulate economic growth remains a priority.

This article was written by William Schomberg, edited by Andy Bruce.