Jeremy Hunt announces changes to measures from mini-budget
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Untargeted support to keep down energy bills and worker shortages means the UK is heading for the sharpest economic contraction in the G7. The Organisation for Economic Co-operation and Development (OECD) forecast a fall of 0.4 percent in 2023 and growth of just 0.2 percent in 2024.
“Risks to the outlook are considerable and tilted towards the downside,” the report warned.
“Higher-than-expected goods and energy prices could weigh on consumption and further depress growth.
“A prolonged period of acute labour shortages could force firms into a more permanent reduction in their operating capacity or push up wage inflation further.”
Downing Street pointed out that Britain had the highest growth in the G7 this year and the forecast puts the UK on a similar level to Germany.
“So these are challenges that are affecting countries at slightly different times,” the spokesman said.
No 10 said the government was “taking a different approach” after April to energy support by targeting it more towards the most vulnerable.
It pointed out the independent Office for Budget Responsibility, which set out its own forecasts last week for the autumn statement, is working off the latest information and expects inflation to fall sharply next year.
Inflation in the Eurozone averages at about 10.7 percent compared to 11.1 percent in the UK.
Germany is the only other G7 country set to see its national income shrink next year, with a 0.3 percent drop in GDP.
Italy will see only paltry growth of 0.2 percent, while the United States will eke out 0.5 percent expansion, with GDP set to rise by 0.6 percent in France and one percent in Canada and 1.8 percent in Japan.
The UK is also the third worst performing nation of all the G20 advanced countries worldwide, with only Russia and Sweden seeing a bigger decline in GDP, at 5.6 percent and 0.6 percent.
When compared with the average of all the world economies, the UK’s performance is set to trail behind the 2.2 percent in global growth predicted for next year.
The OECD said the Government’s efforts to cap energy bills at around £2,500 until April will push up inflation and mean households and businesses will be hit by higher interest rates as a result as policymakers look to rein in price and wage rises.
It said: “The untargeted Energy Price Guarantee announced in September 2022 by the Government will increase pressure on already high inflation in the short term, requiring monetary policy to tighten more and raising debt service costs.
“Better targeting of measures to cushion the impact of high energy prices would lower the budgetary cost, better-preserve incentives to save energy, and reduce the pressure on demand at a time of high inflation.”
The gloomy picture for the UK comes after the official forecaster, the Office for Budget Responsibility (OBR), last week warned Britain’s economy will shrink by two percent in total over a lengthy recession that started in the third quarter.
It downgraded previous projections that the economy would actually grow by 1.8 percent in 2023 to a fall of 1.4 percent for the year.
While the UK is facing a prolonged recession, the OECD believes the world economy will avoid the same fate.
Economist Alvaro Santos Pereira said: “We are currently facing a very difficult economic outlook.
“Our central scenario is not a global recession, but a significant growth slowdown for the world economy in 2023, as well as still high, albeit declining, inflation in many countries.”
It warned that “risks remain significant”.
“In these difficult and uncertain times, policy has once again a crucial role to play, further tightening of monetary policy is essential to fight inflation, and fiscal policy support should become more targeted and temporary.”
Shadow Treasury minister Pat McFadden said: “Next year we will have the lowest growth in the G20 bar Russia. And we are forecast to be the only OECD economy that will be smaller in 2024 than it was in 2019.
“This is the Tory doom loop. A low growth spiral leading to higher taxes, lower investment, squeezed wages and poor public services. And they have no plan to get us out of it.”
Liberal Democrat Treasury spokeswoman Sarah Olney said: “The OECD’s damning verdict of the Government’s economic record should shame the long list of this year’s Conservative Chancellors.”
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