UK economy is lagging substantially behind other developed nations, OECD report says

LONDON — U.K. maturation has lagged the world's biggest economies since the Covid-19 pandemic and is substantially beneath the OECD average, according to a caller study from the influential Paris-based group.

U.K. gross home merchandise has contracted by 0.4% betwixt the 4th fourth of 2019 and the 3rd 4th of 2022, versus cumulative 3.7% maturation successful the 38-member Organisation for Economic Co-operation and Development.

In the G-7 nations — which includes Canada, France, Germany, Italy, Japan, the U.S. and U.K. — GDP has grown by a cumulative 2.5%, with lone the U.K. signaling a decline.

"We deliberation this is happening mostly due to the fact that of concern and due to the fact that of consumption," Alvaro Pereira, the OECD's main economist, told CNBC's Joumanna Bercetche connected Tuesday.

"Knowing the U.K. faces a hard fiscal situation, that's wherefore we invited what the authorities has done successful the latest statement," helium said.

Last week, Finance Minister Jeremy Hunt announced astir £30 cardinal successful spending cuts and £25 cardinal successful taxation hikes for workers and businesses successful what helium said was a bid to rebuild nationalist finances, bounds 41-year-high inflation and reconstruct economical credibility aft the market-rocking September budget.

"We deliberation that it is precise important to support fiscal prudence astatine the aforesaid clip that you're capable to boost oregon effort to present immoderate kinds of reforms to code immoderate of the issues that person been plaguing the United Kingdom for a while, which is precise debased productivity," Pereira continued.

"I deliberation it's clip to absorption connected that arsenic good arsenic monetary and fiscal policy."

Pereira added that the OECD's forecast for the U.K. economy's magnitude of maturation betwixt 2022 and 2024 was similar to the autarkic Office for Budget Responsibility, but it expected a shallower 0.4% recession adjacent twelvemonth followed but 0.2% maturation the twelvemonth after, portion the U.K.'s OBR forecasts a deeper recession and a stronger rebound.

Former Bank of England policymaker Michael Saunders this week told CNBC Hunt's program had a "massive" spread wherever an economical maturation strategy should be.

Tuesday besides saw the merchandise of the OECD's planetary Economic Outlook report.

This cautioned that the planetary system is acceptable to dilatory successful the twelvemonth up owed to the vigor marketplace daze caused by the Russian penetration of Ukraine and amid sky-high inflation, debased user assurance and planetary risks.

However, it believes the satellite volition debar a recession, with 3.1% maturation successful 2022, 2.2% maturation successful 2023 and 2.7% maturation successful 2024.

OECD Secretary-General Mathias Cormann said successful broadcast remarks the "world is facing important headwinds and important risks implicit the horizon" and "countries besides request to instrumentality bold steps to code immoderate of the longer-term challenges to laic the instauration for a stronger and much resilient economy."

This included structural reforms specified arsenic expanding childcare enactment and flexible moving options to promote much women into the workplace, creating incentives to boost concern successful low-emissions technology, and keeping planetary borders unfastened to commercialized to alleviate supply-side inflationary pressures.

Pereira told CNBC: "We are facing a precise challenging environment. I deliberation 1 of the astir melodramatic pictures we person successful our outlook is precisely however overmuch countries are spending successful presumption of vigor arsenic a percent of GDP, and you tin spot that close present for OECD countries it's adjacent to 18% ... which is arsenic precocious arsenic we've seen successful the lipid situation successful the 70s and 80s."

"We are facing a precise ample vigor daze close present which is lowering growth, astatine the aforesaid clip that it's fueling inflation."

The superior downside risks were wrong vigor markets, peculiarly adjacent twelvemonth successful Europe and Asia if determination are 2 acold winters and retail prices travel wholesale prices higher, helium said. The OECD is besides acrophobic astir fiscal marketplace volatility for low-income countries and emerging markets that person precocious indebtedness burdens amid rising rates.

However, helium reiterated the OECD did not forecast an yearly recession, adjacent successful large economies specified arsenic the U.S. and the euro zone.

He besides said cardinal slope enactment connected monetary argumentation would statesman to instrumentality effect to tame inflation, and that the latest U.S. ostentation people was "fairly positive."

"We expect that not lone the U.S. but different parts of the world, the decisiveness of monetary argumentation volition commencement to person much and much of an impact. Our cardinal forecast sees ostentation peaking successful galore countries successful the mid fractional of adjacent twelvemonth oregon precocious this year, but mostly adjacent year," Pereira said.

"Particularly successful 2024 we commencement having ostentation rates overmuch person to target, truthful determination is immoderate airy astatine the extremity of the tunnel, but we request not to fto spell of monetary and fiscal tightening moving manus successful hand."