The Organisation for Economic Development (OECD) has hiked its forecasts for the UK economy this year and next, moving Britain to the top of the G7 growth rankings.
The UK economy will expand 6.9 per cent in 2021 – 0.2 percentage points higher than previously expected, according to the OECD’s latest forecasts for the global economy.
Despite the auspicious outlook, the organisation warned that the UK’s recovery could be spiked by an unpleasant bout of entrenched inflation and shortages.
“A prolonged period of acute supply and labour shortages could slow down the recovery by forcing firms into a more permanent reduction in their operating capacity,” the OECD warned.
Crippling shortages of everything from raw materials to workers has left UK businesses short of resources needed to maintain normal business activity, which is burdoning the UK economic recovery.
Increasing costs have prompted businesses to raise prices to protect their margins, partly contributing to the UK inflation rate climbing to its highest level in nearly a decade.
Mathias Cormann, secretary general of the OECD, said in the UK Economic Forecast: “The strong rebound we have seen is now easing and supply bottlenecks, rising inflation, and the continuing impact of the pandemic are clouding the horizon.”
In the OECD’s previous projections, the UK economy was still ahead of its G7 rivals, but their latest report cements Britain’s position as one of the world’s leading economic growth powerhouses.
The UK should also retain its crown in 2022 as the fastest growing economy of the world’s majors, expanding 4.7 per cent.
The high growth print, however, has been partly driven by Britain suffering one of the worst hits from the Covid-19 crisis, with its economy sliding 9.7 per cent last year.
The OECD revised down their expectations for global economic growth to 5.6 per cent, driven by a longer than expected inflation spike prompting central banks to raise rates.
UK 2022 Structural Reform Priorities
- Education and skills: Boost funding for lifelong learning
- Infrastructure: Increase public investment, prioritising digital infrastructure and deprived regions
- Housing: Improve housing supply and competition in construction
- Labour market: Increase support for full-time good-quality childcare
- R&D and digitalisation: Ensure a balance between direct R&D support and tax incentives
With Education and skills topping the list, it is clear that there is no room for complacency. And housing, the ever-present spectre, is a timely reminder that Covid and immigration should not be the sole priorities.
A document summarising the report can be downloaded here: UK Economic Policy Reforms 2021