Britain’s economy almost as weak as Argentina – as UK set to have highest inflation rate in G7

Britain is on course to be one of the worst-performing advanced economies this year and next, with only Argentina performing worse, according to new forecasts.

The Organisation for Economic Cooperation and Development (OECD) said Britain’s economy would grow faster than Germany and Argentina this year, but slower than all other advanced countries.

And next year, Britain’s growth will outpace Argentina alone, the OECD warned.

The embarrassing forecast comes after former Bank of England governor Mark Carney accused 49-day prime minister Liz Truss of turning Britain into “Argentina on the Channel” because of her “basic misunderstanding of what drives economies”.

Britain is also on course for the highest inflation rate of the G7 group of countries, which also include the United States, Canada, France, Germany, Italy and Japan, the OECD said.

Labour said the OECD’s forecasts show that “the Tories are delivering more of the same”.

Shadow chief secretary to the Treasury Darren Jones said: “Our ‘inaction man’ Prime Minister is too weak to turn things around, while his predecessor Liz Truss calls for even more uncosted policies that crashed the economy this time last year.

"Businesses and workers across the country deserve better, which is why Labour has a plan for the economy to boost growth, increase wages and bring down bills so working people are better off."

But chancellor Jeremy Hunt said the OECD’s report was “good news”, as the organisation forecast inflation would dip below 3 per cent next year. “It is only by halving inflation that we can deliver higher growth and living standards,” Mr Hunt said.

But his comments came as the OECD increased its predicted average UK inflation rate for 2023, compared with an earlier forecast.

It forecast inflation of 2.9 per cent for 2024, reflecting a 0.1 percentage point rise on the previous estimate.

Economists at the globally recognised organisation also reduced their UK growth forecast slightly for next year amid pressure from higher interest rates.

Growth across global economies was better than expected at the start of the year but is “expected to moderate” due to the impact of higher borrowing costs, which have been introduced in many countries as part of efforts to grapple inflation.

Last year, the UK saw inflation average at 9.1 per cent over the year, with a peak of 11.1 per cent.

On Tuesday, the OECD said it expects UK inflation of 7.2 per cent for 2023, increasing its previous forecast of 6.9 per cent from June.

This would be the fastest rate across the G7 and third-fastest across the G20.

It comes as prime minister Rishi Sunak and chancellor Jeremy Hunt face pressure to meet their pledge to halve inflation by the end of the year.

The OECD said inflation across the G20 is expected to be 6 per cent for 2023 – down 0.1 percentage points on its previous forecast; and 4.8 per cent in 2024 – up 0.1 percentage points.

It said there is a risk inflation could reduce quicker than expected, with the body highlighting the impact both of interest rate hikes on consumer spending and slower activity in China.

Meanwhile, the report held its forecast of UK growth in 2023 at 0.3 per cent for the year. This is predicted to be the second-weakest among the G7 and third-weakest among the G20.

The OECD also predicted that UK GDP will grow by 0.8 per cent next year.

Despite the potential increase, this represents a 0.2 percentage point decrease on previous forecasts, and is also predicted to be the weakest growth rate across G7 countries.

In its report, the OECD said: “Activity has already weakened in the euro area and the United Kingdom, reflecting the lagged effect on incomes from the large energy price shock in 2022 and the comparative importance of bank-based finance in many European economies.”