In terms of economic performance, the UK trails other developed countries, according to the Organization for Economic Co-operation and Development (OECD).
According to statistics, the UK’s GDP decreased from 2019 to 2022 by 0.4%. On the other hand, OECD member countries recorded a 3.7% growth during that time. Except for the UK, all of the G-7 countries—which include Canada, Germany, France, Japan, Italy, the US, and the UK—saw economic growth. The bad administration of former UK Prime Minister Liz Truss worsened the UK’s dismal performance.
“We think this happens mostly because of investment and consumption. However, knowing the UK faces a difficult fiscal situation, we welcome what the government has done in the latest statement,” said Alvaro Pereira, the chief economist from the OECD.
“We think that it is very important to maintain fiscal prudence. And at the same time that you’re able to boost or try to introduce some kinds of reforms. To address some of the issues that have been plaguing the United Kingdom for a while. And that is very low productivity,” he added.
Jeremy Hunt, the UK’s finance minister, presented the country’s spending plan in response to the country’s grave economic circumstances. Contrary to Truss’s earlier proposal, which sparked criticism from the public and finally resulted in her departure, the new plan hopes to solve the country’s problem.
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OECD expects more issues
The Global Economic Outlook report from the OECD foresaw a slowdown globally next year. According to the analysis, a total rise of 2.2% in 2023 and 2.7% in 2014 will help the world economy avoid the imminent recession. Countries must commit all of their resources to resolve their present economic issues, according to OECD Secretary-General Mathias Cormann.
“(The) world is facing substantial headwinds and substantial risks over the horizon. (And) countries also need to take bold steps. To address some of the longer-term challenges to lay the foundation for a stronger and more resilient economy,” Cormann said.
“We are facing a very challenging environment. I think one of the most dramatic pictures we have in our outlook is exactly how much countries are spending. In terms of energy as a percentage of GDP. And you can see that right now for OECD countries. It’s close to 18%, which is as high as we’ve seen in the oil crisis in the 70s and 80s,” Pereira added.
“We are facing a very large energy shock right now, which is lowering growth at the same time that it’s fueling inflation.”
The energy crisis
Global economic problems are made worse by the energy crisis. According to the OECD, countries would suffer severe consequences from the reductions in energy supplies if market prices surge.
“We expect that not only in the US but other parts of the world. So the decisiveness of monetary policy will start to have more and more impact. Therefore, our central forecast sees inflation peaking in many countries in the mid-half of next year or late this year. But mostly next year,” Pereira added.
“Particularly in 2024, we start having inflation rates much closer to target. So there is some light at the end of the tunnel. But we need not let go of monetary and fiscal tightening working hand in hand.”