ConsumerConnect | UK inflation forecast to be highest of advanced economies in G7 Group

*The Organisation for Economic Co-operation and Development, a think-thank, has projected the UK inflation would average 7.2 percent in 2023 among the G7 group comprising the US, Germany, France, Japan, Canada and Italy

*We’re ‘on the right track to halve inflation’ by end of the year –British Government

Isola Moses | ConsumerConnect

Consumer prices will rise faster in the United Kingdom (UK) than any other advanced economy in the world 2023, a forecast has suggested.

The Organisation for Economic Co-operation and Development (OECD), a think thank said UK inflation would average 7.2 percent in 2023.

The think tank said this would be the highest rate in the G7 group, which includes the US, Germany, France, Japan, Canada and Italy.

The OECD, a globally recognised think tank has raised its forecast for UK inflation by 0.3 percentage points from its previous estimate for 2023, agency report said.

The British Government, however, said it was confident it was “on the right track to halve inflation” by the end of this year, agency report noted.

The UK said that the OECD’s forecast “illustrates yet again why we need to stick to the plan that we have set out.”

At 7.2% it will be higher than in Germany and Italy, which are forecast to have rates of 6.1%, France (5.8%), the US (3.8%), Canada (3.6%) and Japan (3.1%), report noted.

The think tank further predicts the UK inflation will fall to 2.9 percent next year.

‘Bank right to raise interest rates’ -Chief Economist

The UK’s latest inflation data for August will be released Wednesday, September 20, and it is predicted to rise from 6.8% to 7%, after falling steadily in recent months.

Clare Lombardelli, Chief Economist at the OECD, said the UK had “seen slightly higher inflation than previously expected” and that the Bank of England was “taking the right action in raising rates” to tackle it.

The Bank of England (BoE) has put up rates 14 times since December 2021, and is expected to increase them again on Thursday, from 5.25% to 5.5%.

Implications of economic theory on consumers

It was learnt the economic theory behind this development is that it makes it more expensive for consumers to borrow money, meaning they will have less excess cash to spend, households will buy fewer things and price rises will ease.

But it’s a balancing act as raising rates too aggressively could cause a recession in the country.

The OECD’s economists as well reduced their economic growth forecast for the UK for next year, due to pressure on households and businesses from higher interest rates.

The think tank projected that economic activity had “already weakened” in the UK due to the “lagged effect on incomes from the large energy price shock in 2022”.

It predicts growth of 0.3% in 2023, the second-weakest among the G7, and growth of 0.8% next year.

Darren Jones, Labour’s shadow Chief Secretary to the Treasury said the OECD’s economic forecasts “show that the Tories are delivering more of the same.”

Meanwhile, the official spokesperson of the British Prime Minister disclosed the government was “making significant progress” to slow prices but was “not complacent”.

He stated the OECD’s predictions on economic growth did not take into account recent revisions elsewhere, suggesting Britain’s economy had recovered quicker than others from the COVID-19 pandemic.

It is noted that forecasts aim to give a guide to what is most likely to happen in the future, but can be incorrect and do change.

They are used by businesses to help plan investments, and by governments to guide policy decisions, according to report.

inflation forecast to be highest of advanced economies in G7 Group –OECD