Jeremy Hunt suffers blow as leading economists cut growth forecast for Britain in general election year

Chancellor Jeremy Hunt  (PA Wire)
Chancellor Jeremy Hunt (PA Wire)

Chancellor Jeremy Hunt suffered a blow as leading economists cut their forecasts for growth in Britain warning it will be “sluggish”.

The Organisation for Economic Co-operation and Development (OECD) predicted the UK would see the weakest growth across the G7 group of major economies next year.

This year, with the general election expected in the autumn, growth will be weak, said the Paris-based think tank, despite signs of the economy picking up.

In its latest economic outlook report, it said that there are “some signs that the global outlook has started to brighten” amid easing inflation.

The UK’s economy grew by 0.1 per cent last year and is expected to see growth nudge up to 0.4 per cent this year, the OECD said.

However, it represents a downgrade to forecasts after previously predicting 0.7 per cent growth for 2024.

It also means it is on track to record the second weakest growth across the G7, with only Germany being worse on 0.2 per cent.

The new report also said the UK economy is on track to grow by around one per cent next year. This is slower than projected for Germany and the other G7 nations - Canada, France, Italy, Japan and the US.

The economists said “GDP growth is projected to remain sluggish” in the UK in the face of a “waning drag from past monetary tightening”.

The OECD said higher wages will help consumer spending over the next two years but could contribute to inflationary pressure as the Bank of England continues with efforts to get Consumer Price Index (CPI) inflation down to its two per cent target rate.

“Stronger real wage growth will support a modest pick-up in private consumption,” the report said.

“Headline inflation is expected to continue moderating towards target as energy and food prices have eased substantially, but persistent services price pressures will keep core inflation elevated at 3.3 per cent in 2024 and 2.5 per cent in 2025.”

It also predicts the Bank of England’s Monetary Policy Committee (MPC) will start cutting interest rates - which currently sit at a 15-year-high of 5.25 per cent - in the third quarter of this year.

UK interest rates are on track to drop to 3.75 per cent by the end of 2025, it said.

Meanwhile, the UK’s unemployment rate is expected to rise over the period.

The unemployment rate unexpectedly increased to 4.2 per cent for the latest three-month period to February.

The OECD said this is due to continue increasing and reach as high as 4.7 per cent in 2025 “as the labour market cools”.

Mr Hunt said: “This forecast is not particularly surprising given our priority for the last year has been to tackle inflation with higher interest rates.

“But, now we are winning that war, growth matters, which is why it is significant that last month the IMF (International Monetary Fund) predicted the UK will grow faster over the next six years than any European G7 country or Japan.

“To sustain that we need to stick to our plan - competitive taxes, a flexible labour market and far-reaching welfare reform.”

Global gross domestic product (GDP) is expected to grow by 3.1 per cent this year, unchanged from 2023.