Brexit uncertainty is causing Britain to miss an upswing in global growth, as high levels of inflation hold back household purchasing power, the Organisation for Economic Co-operation and Development has said.
The Paris-based thinktank downgraded its 2017 growth forecast for the UK to 1.5% from a 1.6% estimate made in September, making Britain the weakest economy in the G7. The growth rate is predicted to fall to 1.2% in 2018 and 1.1% in 2019, better than its previous forecast, on the basis that the UK secures an interim deal to gradually leave the EU after the conclusion of article 50 talks in March 2019.
The OECD found job creation was losing momentum, while consumer spending would remain subdued as higher inflation, pushed up by the depreciation of sterling after the Brexit vote, continued to hold back household purchasing power. While a weaker pound should help to increase exports, import growth is projected to fall as a consequence of weaker private consumption, it added.
“The major risk for the economy is the uncertainty surrounding the exit process from the European Union, which could hold back private spending more than projected,” its report found, adding that the prospect of maintaining the “closest possible economic relationship” with the EU would lead to stronger-than-expected growth.
The gloomy outlook comes a week after Philip Hammond delivered the sharpest downgrade in economic growth at a budget since the Conservatives came to power in 2010. Faced with evidence showing the UK will be one of the weakest-growing major economies in the next five years, the chancellor placed a stamp duty cut for first-time buyers at the heart of his tax and spending package.
The government also published its industrial strategy white paper this week in an effort to improve the UK’s sputtering record on productivity growth, which has held back economic growth and pay since the financial crisis.
Meanwhile, the OECD forecasts that global growth will reach 3.6% this year, up from a previous forecast of 3.5%, led by India, China and a recovery in the euro area, before accelerating to 3.7% in 2018. It said a modest fallback in global growth would come in 2019, back to this year’s levels, as longer-term challenges inhibit stronger, more inclusive and resilient economies.
José Angel Gurría, the OECD general secretary, said: “Growth has picked up momentum and the short-term outlook is positive, but there are still clear weaknesses and vulnerabilities.
“There is a need to focus structural and fiscal action on boosting long-term potential as monetary policy support is reduced. Countries should implement reform packages that catalyse the private sector to promote productivity, higher wages and more inclusive growth.”