The Organisation for Economic Cooperation and Development (OECD) has substantially revised its economic growth forecasts for the United Kingdom, positioning the nation as a frontrunner among G7 countries. This adjustment comes just weeks before the anticipated October Budget, potentially alleviating some fiscal concerns for Chancellor Rachel Reeves.
According to the latest OECD projections, the UK's GDP growth for 2024 has been upgraded from 0.4% to 1.1%, marking the most significant increase among G7 nations. The positive trend is expected to continue into 2025, with a forecast of 1.2% growth, up from the previous 1% estimate made in May 2024.
These revised figures align with the government's ambition to achieve the highest sustained growth in the G7. The UK's economy has shown resilience, growing by 0.7% in the first quarter of 2024 and 0.6% in the second quarter, primarily driven by a robust services sector, which accounts for approximately 80% of the country's economic output.
Rachel Reeves responded to the OECD's update, stating, "Faster economic growth figures are welcomed, but I know there is more to do and that is why economic growth is the number one mission of this Government." She emphasized that the upcoming Budget would focus on "fixing the foundations" to deliver on promises of change and national rebuilding.
The OECD attributes the UK's recent growth to increased household spending, bolstered by real wage rises as inflation declines. This positive outlook contrasts sharply with forecasts for other G7 nations. Germany's growth projection for 2024 has been reduced from 0.2% to 0.1%, due to a significant downturn in its industrial sector and high household savings rates. Similarly, Japan's forecast has been revised from 0.5% growth to a 0.1% contraction.
These adjustments position the UK as the second-highest growing economy in the G7 for 2024, surpassed only by the United States, which is expected to see a 2.6% GDP increase. The UK shares its 1.1% growth forecast with Canada and France.
Despite the optimistic outlook, the global economic landscape remains uncertain. Planned tax increases have led businesses to postpone decisions, potentially impacting future growth. Recent Purchasing Managers' Index (PMI) data indicated a slowdown in UK private sector growth in September 2024, which analysts attribute to Budget-related uncertainties.
As the UK government prepares for the October Budget, these revised forecasts may influence fiscal policy decisions. The OECD's projections provide a more positive economic backdrop, potentially affecting the Chancellor's approach to addressing the alleged £22 billion fiscal deficit left by the previous administration.
While the upgraded forecasts are encouraging, it's important to note that economic predictions are subject to revisions based on new data and changing global conditions. The UK's position as the world's fifth-largest economy by nominal GDP underscores the significance of these projections for both domestic and international economic landscapes.
As the Budget approaches, all eyes will be on how the government plans to capitalize on this improved economic outlook while addressing long-term fiscal challenges and maintaining the momentum in key sectors such as services, finance, and technology.