OECD Forecasts Slower Interest Rate Cuts and Economic Growth for UK
The Organisation for Economic Co-operation and Development (OECD) has released new economic predictions for the United Kingdom, suggesting that interest rates will fall more slowly than previously expected due to the recent Budget measures.
The think tank’s latest forecast indicates that the UK economy will experience a more nuanced growth trajectory over the next few years. The OECD now expects:
– 0.9% economic growth in the current year (down from an earlier 1.1% projection)
– 1.7% growth next year (up from 1.2%)
– 1.3% growth in 2026
Chancellor Rachel Reeves highlighted the positive aspects of the forecast, claiming that the UK is set to be the fastest-growing European economy in the G7 over the next three years. In October, she had outlined plans to increase public spending by nearly £70 billion annually, funded through tax rises and additional borrowing.
Interest rates, currently at 4.75%, are now expected to fall to 3.5% by early 2026, a slower decline than previously anticipated. This projection is partly attributed to higher-than-expected inflation and the Budget’s potential economic impacts.
The Budget has raised concerns about potential economic challenges, particularly regarding the planned increase in National Insurance rates for employers. Bank of England Governor Andrew Bailey acknowledged the uncertainty surrounding how businesses will respond to this change, noting that companies are currently evaluating how to balance prices, wages, employment levels, and profit margins.
The employer National Insurance rate will rise from 13.8% to 15% in April next year, a move that has drawn criticism from businesses. Some warn that the increased costs might be passed on to customers through higher prices or potentially limit job creation.
The Conservative opposition has been critical of the Budget, with Shadow Business Secretary Andrew Griffith arguing that it could harm job seekers and business expansion plans.
The OECD’s economic predictions, released twice annually, serve as a guide for businesses and governments in planning investments and policy decisions. However, it’s important to note that these forecasts can change and are not definitive.
Key takeaways from the OECD report include:
– Slower interest rate cuts
– Potential inflationary pressures
– Moderate economic growth
– Concerns about the impact of increased National Insurance rates
While Chancellor Reeves remains optimistic about economic growth, the OECD’s forecast suggests a complex economic landscape with potential challenges ahead. Businesses and policymakers will need to carefully navigate the potential impacts of the Budget and ongoing economic uncertainties.
