The UK is set to experience the worst economic performance of the wealthy G7 countries over the next two years, including the deepest recession next year, suffering from runaway inflation exacerbated by labor shortages, according to the Organization for Economic Co-operation and Development (OECD).
The OECD expects gross domestic product (GDP) to contract by 0.4% next year after growing 4.4% this year, in its latest forecast released on Tuesday. For 2024, the OECD, which brings together the most industrialized countries in the world, anticipates growth of 0.2% in the United Kingdom.
The organization is however more optimistic than the OBR, the British budget forecasting body, which expects -1.4% next year. The Bank of England is even more pessimistic and expects a contraction of 1.5% next year, followed by another 1% in 2024.
The ills of the UK
Although the United Kingdom is less dependent than other countries on interruptions in the supply of Russian hydrocarbons, its energy mix nevertheless relies heavily on gas, the prices of which have increased over a year.
The country also suffers from an acute lack of workers, in particular due to an increasing number of cases of long-term illnesses which are reducing the active population, but also to Brexit, which complicates the hiring of European workers. More and more business leaders, such as those of the British clothing giant Next or Manchester airport, are criticizing the impact of leaving the European Union on immigration and therefore on the labor market. work.
On Monday, the boss of the CBI, the main employers’ organization, asked the government to relax migration rules to be able to welcome more foreign workers, saying there were not enough arms in the country to meet the needs. .
Galloping inflation
Inflation is currently above 11% in the UK and is expected to gradually decline to 2.7% by the end of 2024, the OECD projects. The organization also criticizes the fact that the aid for energy bills granted by London to the British are not sufficiently targeted towards the most needy. The massive expenditure generated will “feed inflation”, which “will require a greater tightening of monetary policy” and therefore risks weighing even more on activity, argues the OECD.
The organization thus estimates that the Bank of England, which has been raising its key rate regularly for several months to counter price increases, should raise it to 4.5% by the second quarter of 2023.
Within the G7, Germany should register growth of 1.8% this year then a contraction of 0.3% next year, almost as strong as across the Channel, before a rebound of 1.5% in 2024, according to the OECD. By comparison, the United States should experience growth of 1.8% this year, then 0.5% next year and 1% in 2024.