UK growth to outpace G7 rivals, but Omicron clouds global outlook – OECD

The UK is set to enjoy the fastest growth among the world’s seven most advanced economies but supply chain problems could hamper the recovery while the new Omicron variant of coronavirus threatens the wider global outlook, a major international organisation has warned.

The Organisation for Economic Co-operation and Development (OECD) said Britain is on track for output to jump by 6.9% in 2021, with growth of 4.7% in 2022 and 2.1% in 2023.

This would see the UK outpace its G7 rivals both this year and next as the UK bounces back from one of the worst Covid-19 recessions among the nations.

The 2021 forecast marks an upgrade from the 6.7% predicted in September, and, while the 2022 outlook is downgraded from the 5.2% previously pencilled in, it would still see the UK lead the G7 pack.

But the OECD warned that Britain could suffer a setback if supply and worker shortages do not ease.

And the OECD’s chief economist, Laurence Boone, issued a stark alert on the threat posed by the new Omicron variant to the worldwide economy.

Presenting the OECD’s latest report, she said: “We are concerned that the new variant of the virus, the Omicron strain, is further adding to the already high levels of uncertainty and risks, and that could be a threat to the recovery.”

The OECD lowered its global growth outlook in 2021 to 5.6% from 5.7% and kept it unchanged at 4.5% for 2022, although the report was compiled before the variant emerged.

The Paris-based group cited key risks to both the UK and global economy from surging inflation, supply chain bottlenecks and interest rate increases.

On the UK, it said: “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.”

It added that household and business spending could be hampered by bigger-than-expected price increases for goods and energy, while inflation worries could lead to an early rise in rates.

“A worsening trade relationship with the European Union could also weigh on the economic outlook in the medium term,” it added.

But it said there could be a boost to the UK outlook if workers fill vacancies at a faster pace following the end of the furlough support scheme, helping ease some of the labour shortages.

The OECD said it is “cautiously optimistic” over the global picture, though it said “striking imbalances” have emerged.

Ms Boone said: “Governments acted swiftly and effectively during the height of the crisis to support people and businesses.

“But the job is not finished.

“The lack of global co-ordination on vaccine deployment is putting all of us at risk.”

She added: “The harshest scenario is that pockets of low vaccination end up as breeding grounds for deadlier strains of the virus, which go on to damage lives and livelihoods.”