A man rolls a cart past a screen showing Chancellor of the Exchequer Jeremy Hunt being interviewed by the BBC outside the BBC Studios in central London on the morning after his autumn statement.
Aaron Chown – Pa Pictures | Pa Pictures | Getty Images
LONDON – Britain’s growth has lagged behind the world’s largest economies since the Covid-19 pandemic, and is well below the OECD average, according to a new report from the influential Paris-based group.
UK gross domestic product shrank 0.4% between the fourth quarter of 2019 and the third quarter of 2022, compared with 3.7% cumulative growth in the 38-member Organization for Economic Co-operation and Development.
In the G-7 countries – which includes Canada, France, Germany, Italy, Japan, the US and the UK – GDP has grown by a cumulative 2.5%, with only the UK recording a decline.
“We believe this is mainly driven by investment and consumption,” Alvaro Pereira, chief economist at the OECD, told CNBC’s Joumanna Bercetche on Tuesday.
“As we know the UK is facing a difficult budgetary situation, we therefore welcome what the Government has done in the recent statement,” he said.
Last week Treasury Secretary Jeremy Hunt announced spending cuts of around 30 billion from the market-shocking September budget.
“We think it’s very important to maintain fiscal prudence while also stimulating or attempting to introduce some types of reform to address some of the issues that have been plaguing the UK for some time, with very low productivity,” continued Pereira .
“I think it’s time to focus on that as well as monetary and fiscal policy.”
Pereira added that the OECD forecast for the magnitude of UK economic growth between 2022 and 2024 is similar to that of the independent Office for Budget Responsibility, but she expected a shallower 0.4% recession next year but growth from 0.2% a year later, while the UK OBR forecasts a deeper recession and a stronger recovery.
Former Bank of England policymaker Michael Saunders told CNBC this week Hunt’s plan has a “massive” hole where an economic growth strategy should be.
‘Light at the end of the tunnel’
The OECD Global Economic Outlook was also released on Tuesday.
It warned that the global economy will slow in the coming year due to the energy market shock caused by Russia’s invasion of Ukraine and amid sky-high inflation, low consumer confidence and global risks.
However, she believes the world will avoid a recession, with growth of 3.1% in 2022, 2.2% growth in 2023 and 2.7% growth in 2024.
OECD Secretary-General Mathias Cormann said in broadcast remarks that “the world faces significant headwinds and significant risks on the horizon” and “countries also need to take bold steps to address some of the longer-term challenges and lay the foundation for a stronger and more resilient economy.” “
These included structural reforms such as increasing childcare support and flexible working arrangements to attract more women into the labor market, creating incentives to encourage investment in low-carbon technologies, and opening international borders to trade to address supply-side inflationary pressures to mitigate.
Pereira told CNBC: “We are facing a very challenging environment. I think one of the most dramatic pictures that we have in our outlook is exactly how much countries are spending in terms of energy as a percentage of GDP and you can see that now for the OECD countries it’s almost 18%… what so is high, as we saw in the oil crisis in the 70’s and 80’s.”
“We are currently facing a very large energy shock that will slow growth while fueling inflation.”
The main downside risks lie within energy markets, particularly in Europe and Asia next year when there are two cold winters and retail prices follow wholesale prices higher, he said. The OECD is also concerned about financial market volatility for low-income and emerging economies that are burdened with debt as interest rates rise.
However, he reiterated that the OECD had not forecast an annual recession even in large economies such as the US and the euro zone.
He also said that the central bank’s monetary policy measures are beginning to have an impact to tame inflation and that recent US inflationary pressures are “pretty positive”.
“We expect that not only in the US, but also in other parts of the world, monetary policy determination will have an increasingly strong impact. Our key forecast is that inflation will peak in many countries in the middle of next year or late this year, but mostly next year,” Pereira said.
“In 2024 in particular, we’re starting to have inflation rates much closer to target, so there’s some light at the end of the tunnel, but we don’t have to give up monetary and fiscal tightening, which work hand-in-hand.”