The OECD’s interim Economic Outlook report has landed this morning and its forecast for the UK has been revised significantly upwards. Having predicted in May that the economy would grow by 0.4 per cent this year, the policy organisation now expects the economy to grow by 1.1 per cent. This lifts the UK from the bottom of the pack of advanced economies and ties it in second place – alongside France and Canada – for the fastest growth in the G7.
The news comes as the OECD declares that the global economy is ‘turning a corner’ (the name of today’s report), as global GDP looks set to ‘stabilise’ at 3.2 per cent in 2024 and 2025, while the majority of the 38 countries represented by the OECD have managed to get a grip on inflation, returning their rates to – or near to – target.
This is all good news for Britain – although that might depend on who you ask, and when. Labour spent the summer struggling to balance its doom-and-gloom narrative for the economy with the fairly decent economic updates that kept rolling in, as inflation returned to target and yearly growth revisions kept improving. It’s stories like this OECD report that challenge the claim that the economy is on the brink and that painful decisions are needed in October’s Budget to keep the UK clear of another mini-Budget fiasco.
That said, Labour party conference showed signs this week that ministers were looking to take a slightly more optimistic approach (or that they felt the negative narrative has simply gone too far), especially after consumer confidence plummeted to its lowest levels since March. Both Keir Starmer and Rachel Reeves laid out a far more positive picture of the future, but that future is still expected to include tax hikes and spending cuts, both in next month’s Budget and in the Spending Review next spring.
‘Faster economic growth figures are welcomed,’ the Chancellor said of the news this morning, ‘but I know there is more to do and that is why economic growth is the number one mission of this government.’ Growth remains the government’s favourite buzzword, but the details of how exactly that is delivered remain vague. The party seemed to clock a long time ago that more private investment would be needed to get the country building – a lesson learned the hard way when it had to roll back its pledge of £28 billion worth of green investment spending, because the funds were obviously not there to make good on it.
But might the Chancellor try to figure out other ways of finding some money for capital spending? Following on from the report this morning, the OECD’s chief economist Alvaro Pereira speaks to the Financial Times, encouraging the Chancellor shake up the fiscal rules that rein in the Treasury’s spending, warning that the current rules ‘may tend to short-termism and the potential deterioration of the public finances in the long run.’
No doubt the rules are flawed and short-termist. But Reeves has two problems: first, Labour committed, roughly, to keeping Jeremy Hunt’s fiscal rules in their manifesto. As IFS director Paul Johnson noted in The Spectator the weekend before the election, any changes to this (even if they had merit) would be a ‘very clear manifesto breach’.
But the second issue will be one of confidence. The fiscal rules as they exist now are already very loose. That debt is required to fall as a percentage of GDP on a five-year, rolling basis means that a chancellor only has to promise to cut spending in the next parliament to increase borrowing (and pile on to the national debt) in the years leading up to this hypothetical reckoning which (unsurprisingly) never comes. Rishi Sunak and Hunt managed to get away with a relatively loose rule, partially because they were seen as restoring stability to the public finances after such a chaotic time. But to tamper with, and loosen it, further would no doubt grab market attention.