The UK economy will grow the fastest among the group of the world’s richest countries, according to the Organisation for Economic Co-operation and Development (OECD).
The OECD thinks the UK economy will expand 6.7 per cent in 2021, the highest rate of growth among the G7.
The UK’s leading growth rate has been driven by ultra accommodative support from the Bank of England and the successful rollout of Covid-19 vaccines.
Britain’s vaccination programme flew out of the gates at the beginning of 2021, allowing restrictions on consumer-facing businesses to end relatively earlier compared to other rich nations.
The services industry accounts for around 80 per cent of the UK economy, meaning the burst in spending that has accompanied the Covid-19 unlocking provided a bigger boost to output compared to other rich countries.
The global economy has now recovered to its pre-pandemic size, the OECD said. The organisation expects it to grow 5.7 per cent this year and 4.5 per cent next year.
The US economy will grow six per cent this year, while the Eurozone will expand 5.3 per cent.
The OECD warned inflation is likely to undergo a sharp uptick in the UK and the rest of the global economy as a result of supply chains buckling under the weight of a sudden burst in demand engineered by the global economy emerging from Covid-19 restrictions.
The UK is suffering from an energy crisis, caused by wholesale gas prices skyrocketing due to severe shortages and supply chain disruption. A spate of energy firms have collapsed due to higher gas prices wiping out margins, while a paucity of raw materials is also strangling production in the manufacturing and construction industries.
The OECD upped its inflation forecast for the UK by one percentage point. The organisation called on central banks to keep policy loose to avoid choking off the global economic recovery from the pandemic.
“Accommodative monetary policy should be maintained, but clear guidance is needed about the horizon and extent to which any inflation overshooting will be tolerated, and the planned timing and sequencing of eventual moves towards monetary policy normalisation,” the OECD said.
The Bank of England and US Federal Reserve’s committee of rate setters will shed more light on the direction of policy on Wednesday and Thursday respectively.