Bleak forecast says UK is to have highest inflation rate out of G7 countries

The UK economy is expected to see the worst inflation rate out of the world’s G7 economies, according to a new forecast.

The Organisation for Economic Co-operation and Development (OECD) said it expects UK inflation to hit 7.2%.

This is an increase from the previous 6.9% forecast in June, making it the fastest growing rate across the G7 and across the G20.

Economists also reduced their UK growth forecast slightly for next year amid pressure from higher interest rates.

This is despite growth across global economies being better than expected at the start of the year.

It 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% over the year, with a peak of 11.1%.

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 latest forecasts also predicted inflation of 2.9% for 2024, reflecting a 0.1 percentage point rise on the previous estimate.

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

It said there is a risk inflation could reduce quicker than expected, with the body highlighting the impact 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% 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% 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.’

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