UK ‘to face worst downturn of major economies’ in 2023, says OECD

The government was today accused of sending the country into an economic “doom loop” after new forecasts suggest Britain will rank bottom of the growth league table for major economies for the next two years in succession.

The finding from the Organisation for Economic Co-operation and Development (OECD) came as prime minister Rishi Sunak warned his cabinet of a bleak winter ahead, due to soaring inflation, strike threats and spiralling NHS waiting lists.

Britain’s prospects were sharply downgraded by the intergovernmental think tank, which forecast GDP will shrink by 0.4 per cent in 2023 and grow by just 0.2 per cent in 2024. As recently as September, it was expecting the UK economy to flatline next year.

It also said that the UK was vulnerable to blackouts over the coming months, warning: “A particularly cold winter could risk supply disruptions, exposing the economy to rolling power cuts.”

Labour Treasury spokesperson Pat McFadden said the figures showed the UK was the only one of the OECD’s 38 member-states whose economy was not expected to return to pre-Covid levels by 2024.

The twice-yearly Economic Outlook report showed the UK lagging behind every G7 country in 2023 and 2024, while its GDP forecast was worse than any member of the larger G20 group apart from Sweden and sanction-hit Russia, whose economy was predicted to slump by 5.6 per cent next year.

“Today’s figures from the OECD are yet more evidence of the Tories’ 12 years of economic failure,” said Mr McFadden.

“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.”

The OECD blamed labour shortages and “untargeted” energy support for painful inflation in the UK, forecast to peak at the end of this year around its current level of 11.1 per cent and remain above 9 per cent into early 2023, before easing to 4.5 per cent by the end of next year and 2.7 per cent in 2024.

Its report sees interest rates rising further from 3 per cent currently to 4.5 per cent by April next year, while unemployment will lift from 3.6 per cent to 5 per cent by the end of 2024.

And it warned of the risk of a deeper downturn if consumers respond to spiralling energy and housing costs by reining in spending, taking demand out of the economy just as strikes and labour shortages fuel wage inflation.

Among the G7 group of most developed nations, only Germany is expected to join the UK in seeing a contraction in national income next year, with GDP falling by 0.3 per cent.

By contrast, the United States will enjoy an expansion of 0.5 per cent, with GDP set to rise by 0.6 per cent in France, 1 per cent in Canada and 1.8 per cent in Japan.

The OECD said that much of the rest of the world will dodge the recession which the Bank of England and Office for Budget Responsibility expect to stretch into 2024 in the UK.

OECD interim chief economist Alvaro Santos Pereira said the world was currently facing “a very difficult economic outlook” but that global growth is nonetheless forecast to be 2.2 per cent in 2023.

“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,” he said.

The OECD took aim at the government’s decision to cap domestic energy bills at an average £2,500 until April, saying it will force up inflation and interest rates.

The “untargeted” Energy Price Guarantee announced by the short-lived Liz Truss administration and continued by Mr Sunak will “increase pressure on already high inflation in the short term”, driving up interest rates further, the report found.

“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,” said the OECD.

But prime minister Rishi Sunak’s official spokesperson told reporters that the government had already amended how the scheme will function from April, lifting the cap to an average £3,000 and focusing funds more tightly on those in greatest need.

The chief executive of economic think tank the Resolution Foundation, Torsten Bell, said that blaming the energy support package was “very weird”.

“Apparently Energy Price Guarantee generosity is the problem, which is odd,” he said. “EPG is worth just £300 versus current estimates of typical energy bills.”

Responding to the bleak OECD forecast for the next two years, Mr Sunak’s spokesperson said that all major economies were facing similar issues with energy prices, the war in Ukraine and the fallout from Covid.

“These are challenges that are affecting different countries at slightly different times,” said the spokesperson.

The prime minister himself braced his cabinet on Tuesday for misery in the coming months, telling them it would be “a challenging period for the country caused by the aftershocks of the global pandemic and the ongoing conflict in Ukraine”.

With nurses voting to strike, health secretary Steve Barclay warned the NHS backlog had already been “significantly exacerbated” by the pandemic.

Downing Street said 400,000 people were currently waiting more than 52 weeks for operations, compared with 1,600 before Covid-19 hit.

The PM’s spokesperson said the potential for power blackouts was not discussed but insisted ministers are “preparing for all eventualities”.

“We do have quite a diverse energy provision,” he said. “Offshore wind continues to provide a huge amount of our energy, particularly during the winter months.

“While we are preparing for all eventualities, we are confident that we will continue to have good provision throughout the winter months.”

Liberal Democrat Treasury spokesperson Sarah Olney said the OECD report showed the government had “trashed our economy”.

She said: “This government has blown a massive black hole in Britain’s finances and is now expecting hardworking families to pick up the bill.

“The sensible way to solve this is surely to tax the richest companies making bumper profits. We can’t trust this Conservative government to clean up their own mess. They should never be trusted to run our country’s economy.”