The global economy is “turning a corner”, according to the latest outlook from the Organisation for Economic Cooperation and Development as it upgraded the UK’s growth forecast for this year to faster than Japan, Italy and Germany.
The OECD ranked Britain joint second among the G7 developed countries behind the US in its latest outlook on the global economy, but the UK is still expected to have the highest inflation in the group.
Describing the UK’s economic growth as “robust”, the OECD upgraded its growth for 2024 to 1.1% from a forecast of 0.4% made in May, as the country recovers from a mild recession at the end of last year. The forecast of 1.2% growth in 2025 was maintained.
In the May forecast, the UK was behind all other nations in the informal bloc but is now expected to outpace Japan, Italy and struggling Germany. Britain is now on par with Canada and France but behind the US.
However, Britons are still expected to face headwinds from rising prices, with inflation, which was 2.2% in August, at 2.7% across 2024. UK inflation is on course to remain at 2.4% for 2025, rising at the fastest rate in the G7.
Overall, the OECD said that the global economy was “turning a corner” and lower inflation and cuts to the cost of borrowing by central banks would support “ongoing momentum” in most major economies. Those conditions will allow the global economy to return to health after the shocks caused by the coronavirus pandemic and Russia’s invasion of Ukraine, it said.
The OECD’s chief economist, Álvaro Pereira, said he was surprised by the strength of the recovery earlier in the year after the UK economy contracted in 2023.
The OECD was among the most pessimistic economic forecasters when it made a judgment in May that low consumer spending and weak business investment would drag on Britain’s growth.
Business investment has remained low, but rising wages and low inflation boosted consumer spending by more than expected.
Pereira said the UK was in a similar situation to many European countries that needed to restrict debt levels.
“Not by introducing draconian austerity,” he said, “but it should be said that fiscal prudence is necessary.”
The Paris-based organisation reported that global trade was returning to pre-pandemic levels at a faster pace than expected after shipping firms found ways to avoid the Red Sea.
Meanwhile, weaker inflation meant real incomes had grown and consumer spending recovered in many countries.
However, the OECD said Asian ports were struggling to accommodate ships forced to take longer routes, pushing container costs up by 160% since last year.
Food prices were also stuck at much higher levels, reducing the spending power of people on low incomes.
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Germany was one of the worst affected by higher food prices. Europe’s biggest economy had suffered a 16% increase in food prices above average wage growth since 2019 compared with a gap below 4% in Australia.
Workers in Germany earn 98% of their 2019 wages, while those in Australia earn more than 100%. UK workers earn almost 102% of their 2019 average wages, despite a near 9% increase in food prices above average wages.
The OECD is concerned that governments will seek to reduce spending deficits by increasing borrowing at huge cost when interest rates remain high.
“The bigger the debt, the bigger the amount is needed to pay interest bills,” he said. “This will mean there is less money to spend on health, education and things like promoting growth,” he added.
The chancellor, Rachel Reeves, said: “Faster economic growth figures are welcomed, but I know there is more to do and that is why economic growth is the number one mission of this government.
“Next month’s budget will be about fixing the foundations, so we can deliver on the promise of change and rebuild Britain.”
Andrew Bailey, the governor of the Bank of England, said this week that he expected interest rates to be reduced “gradually” as inflation eased.
