The UK is on course to have the highest inflation of any major rich country, according to new official forecasts which will come as a blow to Rishi Sunak’s economic pledges.
Britain’s economic growth is also lagging most other G7 powers, according to the Organisation for Economic Co-operation and Development (OECD), although the UK is no longer expected to fall into recession.
The verdict published on Tuesday comes one day before updated inflation data from the Office for National Statistics which is expected to show that the pace of price growth increased last month.
The Prime Minister has promised to halve the rate of inflation over the course of this year, aiming for a figure of around 5.2 per cent by December.
He has also pledged to continue growing the UK’s GDP, and to keep the national debt under control.
The OECD’s latest economic outlook said that inflation in Britain would average 7.2 per cent this year, lower than last year’s 9.1 per cent but still the highest rate in the G7. The organisation’s previous forecast, released in June, predicted an average inflation level of 6.9 per cent.
Inflation next year will average 2.9 per cent, according to the OECD, a sharp fall from this year but still above the Bank of England’s 2 per cent target.
The economy is forecast to grow 0.3 per cent this year, the second weakest of any G7 country but enough to avoid a recession. The sluggish growth rate is attributed to the impact of energy prices, which have curbed consumer spending power, and rising interest rates.
The OECD, which is a grouping of wealthy economies sponsored by governments, 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.”
It added that global growth had been stronger than predicted at the start of the year but was “expected to moderate” because of borrowing costs.
Jeremy Hunt, the Chancellor, said in response: “Today the OECD have set out a challenging global picture, but it is good news that they expect UK inflation to drop below 3 per cent next year.
“It is only by halving inflation that we can deliver higher growth and living standards. We were among the fastest in the G7 to recover from the pandemic, and the IMF have said we will grow faster than Germany, France, and Italy in the long term.”
UK inflation has fallen rapidly in recent months but is widely expected to increase in Wednesday’s release because of rising global oil prices which have made petrol and diesel more expensive. The Bank of England will then announce on Thursday whether it will hike interest rates beyond their current level of 5.25 per cent.