Britain is on the brink of a painful recession as prices continue to rise rapidly and the economy records zero growth next year, according to a new analysis.
Organization for Economic Co-operation and Development (OECD) predicted that the UK in 2023 will become the worst performing economy among all countries in the developed world except Russia.
The eurozone economy is expected to grow by only 1.6 percent, the US by 1.2 percent and the UK lagging behind with zero growth.
Analysts say that even if Britain barely avoids a recession, 2023 is likely to be another year of falling living standards with the lowest-income groups that have suffered the most from rising inflation caused by the war in Ukraine.
The OECD warned that the war had immediately slowed down recovery of the world economy after Covid-19 and pushed prices, with Europe suffering the most because of its heavy dependence on Russian oil and gas imports.
The war reiterates the urgent need to ensure energy security and accelerate the green transition, the OECD said, cutting its forecast for global growth next year to 2.8 percent, well below forecasts made in October.
“Countries around the world are exposed to higher commodity prices, which are boosting inflationary pressures and holding back real incomes and spending by slowing the recovery,” OECD Secretary-General Matthias Corman said on Wednesday.
“This slowdown is directly related to Russia’s unprovoked and unjustified aggressive war, which is leading to declining real incomes, growth and fewer jobs around the world.”
Ruth Gregory, Britain’s chief economist at Capital Economics, said Britain was now “dangerously close” to a recession defined as two consecutive quarters of negative growth.
Ms. Gregory has been a little less gloomy than the OECD, planning a 1.5 percent increase as inflation falls from 10 percent this year to 4.8 percent next year as energy price pressures begin to ease.
Low growth and high inflation will mean a further decline in the standard of living of British homeowners who have already begun to feel the effects of the cost of living crisis.
Fuel prices have risen to new record highs on an almost weekly basis, while energy bills will more than double.
The latest figures reveal the “extreme problems” facing the UK economy, said shadow Labor Chancellor Rachel Reeves.
“The fact that economic growth in the UK will stop next year, and only Russia will be worse than we in the G20, is a shameful accusation of chaos and inconsistency of this conservative government,” said Reeves.
“It shows the economic strategy of the Tories, centered around low growth and high taxes.
The OECD report suggests that further price increases are expected if inflation remains higher than previously expected, reaching levels not seen since the 1970s in some countries, including the UK.
“High inflation is undermining household incomes and expenditures, particularly by hitting vulnerable families,” the report said.
The Club of Wealthy Powers also warned that the world’s poorest economies are at risk of a “serious food crisis” due to supply shortages and rising costs due to severe disruptions in grain exports from Ukraine, one of the world’s largest producers.
Further disruptions in oil and gas supplies will lead to a greater economic blow for Europe, the OECD said. With Russian gas pipelines cut off, the OECD expects eurozone growth to fall another 1.25 percentage points, bringing the continent closer to recession.
Other experts say it could be worse.
“If there is an embargo in the next six months, you will get an additional energy shock in the winter. Europe would be in a very difficult position, especially if it is a cold winter, ”said Klaus Wistesen, chief economist at the Pantheon Macroeconomics.
“Europe will receive a significant economic blow and is likely to fall into recession.”
Mr Vistesen questioned whether European leaders would have the political determination to suffer a further jump in energy prices that would trigger an embargo.
Jenny McCain, head of the global division of Capital Economics, said that in the worst case scenario, the German economy will shrink by 6 percent.
“Assuming that labor market support schemes offer some kind of cushion for the economy, the decline should not be so sharp, but we will look at a significant recession and some long-term economic consequences.”
This came after the head of one of the world’s largest commodity traders warned that oil prices could go into a “parabolic state” as supplies decline later this year and buyers fight for limited barrels of oil.
“We have a critical situation,” said Jeremy Weir, CEO of Trafigura. Financial Times conference on Tuesday.
“I really think we have problems for the next six months. . . once it reaches these parabolic states, markets can move and they can jump significantly. ”
The OECD says the UK economy will fall to zero growth in 2023
Source link The OECD says the UK economy will fall to zero growth in 2023