Britain is heading for recession next year as soaring prices, worker shortages and a crippling tax burden slow growth to a standstill. In the OECD’s first bi-annual economic outlook since the war in Ukraine began, the organisation of wealthy nations has slashed growth forecasts across the board, but predicted that Britain would post the slowest growth of any G20 nation except Russia.
The OECD said that in Britain, “private consumption will slow as rising prices erode households’ incomes. Household savings will decline to below pre-pandemic levels, with some households taking on more debt to keep up with the rising cost of living.”
The organisation downgraded global growth in 2022 from 4.5 per cent to 3 per cent, while UK growth was forecast to slow from 3.4 per cent this year to zero per cent in 2023, with inflation peaking above 10 per cent.
According to the report, Britain is suffering the same shocks being felt globally, notably energy market turmoil following Putin’s invasion of Ukraine, and Chinese lockdowns compounding chaos in global supply chains.
But the OECD warned that recent tax increases will make the situation worse. It said the rise in National Insurance, the freezing of personal allowances and business taxes are contributing to the slowdown, and urged Boris Johnson’s government to cut rates or increase spending.
“The government should consider slowing fiscal consolidation to support growth,” it said.
Boris Johnson is already facing considerable pressure from his party and some of his Cabinet to ease the pressure on taxpayers. The UK is buckling under its highest tax burden for 70 years, and the Centre for Economics and Business Research estimates that 9 million workers will be dragged into a higher income tax bracket over the next four years if inflation stays high.
The Adam Smith Institute’s Emily Fielder looks at the taxes the Chancellor must cut to weather the economic storm. See below.
Consumer spending, a key driver of the economy, is being hit hard. Retail sales were down 1.1% in May compared with a year earlier, according to the British Retail Consortium. Big-ticket items such as cars, electronics and furniture were hit hardest by the cutbacks.
And separate data released by Barclaycard this week showed consumers are tightening their belts on luxuries such as eating out and digital subscriptions.
It comes as petrol prices reached 180.73p per litre yesterday, up from 178.50p on Monday, marking the biggest one-day increase in 17 years. The RAC says filling a family car could cost £100 from tomorrow.
While the OECD’s latest report makes for grim reading, it merely reflects a new economic reality that many are already feeling.