UK growth set to slow in 2027, OECD says
The UK economy will grow slower than expected next year as the effects of a long Iran war drag on activity, the world’s leading economic forecaster has said.
The Organisation for Economic Co-operation and Development (OECD) predicted that the UK economy would grow by just one per cent next year, marginally down from a previous forecast of 1.1 per cent.
However, the Paris-based think tank revised its growth forecast for the current year up from 0.9 per cent to 1.1 per cent as GDP figures have surprised analysts in recent months.
The OECD said there had been “solid” demand levels in the second quarter of the year, boosting growth despite a rise in fuel prices.
Higher interest rates are expected to dampen activity over the next 12 months, according to the forecasters.
However, the latest outlook report suggested the Bank of England would leave interest rates at 3.75 per cent before a 25 basis point cut in late 2027. OECD economist Stefano Scarpetta said the UK was “starting from a different position” to other countries and could keep monetary policy on hold in its bid to squash inflationary pressures.
Economists recognised that growth had been “resilient in many countries” despite a breakdown in trade across key routes in the Middle East, limiting the supply of oil and gas.
UK economy set to suffer from high inflation for longer
While inflation may be lower than previously expected this year, the return to stable price growth of two per cent in the UK could take longer due to the continuation of conflicts.
The OECD had previously said inflation could hit 3.6 per cent this year but inflation is now set to average 3.1 per cent this year. It will fall to 2.6 per cent next year, according to forecasts. Inflation across the G20 was expected to be 3.6 per cent next year, higher than previously expected.
Forecasts on prices are lower than predictions set by the Bank of England, which said inflation would peak over four per cent in the coming months.
The OECD’s growth forecast brings it in line with some of the more pessimistic forecasters such as HSBC and the British Chambers of Commerce, a list of forecasts compiled by the Treasury show.
Deutsche Bank has said growth next year could reach as high as 1.4 per cent.
Treasury minister Emma Reynolds said the UK economy was sowing “strong resilience” despite conflicts in the Middle East and in Ukraine.
“We will face these challenges together and we are already giving families space to breathe. We had the fastest growth in the G7 in the first half of the year and we are starting the big, long-term changes needed to create good jobs and growth in every postcode,” she said.