The UK remains on course to have the highest inflation of leading rich economies in 2023, according to Organisation for Economic Co-operation and Development (OECD) forecasts, which showed the country’s inflation problem widening compared with most of its peers.
The UK headline inflation rate is set to average 7.2% over 2023, up from a previous forecast of 6.9% made by the OECD in June. Only Japan among G7 countries had a bigger upwards projection in the latest set of projections by the Paris-based think tank published on Tuesday.
The UK estimate was higher than Germany’s expected inflation this year of 6.1% and France’s 5.8%, both of which represented cuts from the OECD’s June forecasts.
UK Prime Minister Rishi Sunak has promised to halve inflation by the end of this year before an expected election in 2024, meaning it would need to fall from about 7% now to around 5% in December compared with the same month last year.
The OECD’s updated projections — which suggested hitting that target will be a close-run thing — showed UK inflation is set to slow to 2.9% in 2024, the same as France and slightly lower than Germany’s 3.0%.
“Today the OECD [has] set out a challenging global picture, but it is good news that they expect UK inflation to drop below 3% next year,” finance minister Jeremy Hunt said in a statement.
The UK’s high inflation rate has led the Bank of England (BoE) to raise borrowing costs 14 consecutive times since December 2021. It is expected to increase Bank Rate again to 5.5% from 5.25% on Thursday, although economists and investors think that could prove to be the last hike of the BoE’s attempts to smother inflation risks in an economy that is showing signs of slowing.
The OECD said it expected the UK economy to grow by 0.3% in 2023, unchanged from its June forecast and the second-weakest performance among rich economies after Germany, before expanding by 0.8% in 2024, the joint weakest growth rate along with Italy.