The UK predicts the slowest growth of the richest countries next year

The UK predicts the slowest growth of the richest countries next year

The UK economy will see the slowest growth of the largest developed countries next year, according to forecasts.

The Organization for Economic Co-operation and Development (OECD) predicts that the UK’s gross domestic product – a key measure of economic health – will increase by 1% in 2025.

This is below the other G7 countries, including Canada, France, Germany, Italy, Japan and the US.

The OECD, which is a globally recognized think-tank, said the UK economy would be “weak” this year.

The organization blamed the after effects of successive interest rate hikes in the UK for the lackluster performance.

It also warned that some elements of inflation remained high and uncertainty about when the Bank of England might change interest rates might keep people from investing.

The UK economy is now forecast to grow by 0.4% this year, down from the OECD’s previous forecast for 0.7% growth.

This means that for this year only Germany will experience slower growth, he said.

The OECD predicts that tax receipts in the UK will “continue to rise to historic highs” of around 37% of GDP”.

The Government has cut National Insurance twice since last year, with a total reduction of 4%. But the OECD said this “only partly offsets the continuing fiscal drag from the frozen personal income tax threshold”.

Fiscal drag means that as a person’s salary increases, they can move into a higher income tax bracket.

The organization also said that the government’s scheme to allow businesses to deduct the full cost of investment in machinery and equipment from their tax bill “falls short of fully compensating” for the increase in corporation tax which has risen from 19% to 25% this time. year.

But the OECD said that in the long term these measures, as well as the government’s free childcare scheme, “could help reduce fiscal pressure”.

Chancellor Jeremy Hunt said OECD forecasts showed the UK was “winning the war” against inflation.

“This forecast is not particularly surprising given that our priority last year was to tackle inflation with higher interest rates”, he wrote, adding that “growth is important”.

But Darren Jones, Labour’s shadow chief secretary to the Treasury, said: “Today’s news that growth has been lowered once again reminds the British people what they already know: after 14 years of failure, the Conservatives cannot fix the economy because they are the reason it is broken.”

Meanwhile, the Liberal Democrats accused the government of being “economically illiterate”.

“Their no-growth policies have left people stuck with high mortgage rates, weekly shop prices going through the roof, and stealth taxes hammering both pensioners and workers,” said Liberal Democrat Treasury spokeswoman Sarah Olney.

The Bank of England, which is independent of the government, sets interest rates and has a target of keeping inflation at or near 2%.

Inflation – which measures the rate at which prices rise – has slowed significantly from a 40-year high reached in October 2022 to 3.2% in April.

The interest rate has been held at 5.25% since last September. The OECD expects Banks to start cutting borrowing costs from this autumn.

The think tank predicts that interest rates could fall to 3.75% by the end of next year.

Forecasts are intended to provide guidance on what is most likely to happen in the future, but can be inaccurate and subject to change.

It is used by businesses to help plan investments, and by governments to guide policy decisions.

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