The global economy is “turning a corner”, according to the Organisation for Economic Cooperation and Development, which has upgraded the UK’s growth forecast for this year to faster than that of Japan, Italy and Germany.
The OECD’s latest outlook ranked Britain joint second among the G7 developed countries in its latest outlook for the world economy. However, the UK is still expected to have the highest inflation in the group.
It described British economic growth as “robust”, upgrading the 2024 figure to 1.1% from a forecast of 0.4% made in May, as the country recovers from a mild recession at the end of last year. The forecast of 1.2% growth in 2025 was maintained.
In the May forecast, the UK was behind all other nations in the bloc. Now it is on par with Canada and France but behind the US.
However, Britons are still expected to face headwinds from rising prices, with inflation, which was 2.2% in August, at 2.7% across 2024. UK inflation is on course to remain at 2.4% for 2025, rising at the fastest rate in the G7.
Overall, the OECD said the global economy was “turning a corner”. Lower inflation and cuts to the cost of borrowing by central banks would support “ongoing momentum” in most major economies. Those conditions would allow the global economy to return to health after the shocks caused by the coronavirus pandemic and Russia’s invasion of Ukraine, it said.
The OECD’s chief economist, Álvaro Pereira, said he was surprised by the strength of the UK’s recovery earlier in the year after last year’s recession.
The Paris-based organisation was among the most pessimistic economic forecasters when it made a judgment in May that low consumer spending and weak business investment would drag on Britain’s growth.
Business investment has remained low, but rising wages and low inflation increased consumer spending by more than expected.
Pereira said the UK was in a similar situation to many European countries that needed to restrict debt levels. “Not by introducing draconian austerity,” he said, “but it should be said that fiscal prudence is necessary.”
The OECD reported that global trade was returning to pre-pandemic levels at a faster pace than expected after shipping companies found ways to avoid the Red Sea.
Meanwhile, weaker inflation meant real incomes had grown and consumer spending recovered in many countries. However, the OECD said Asian ports were struggling to accommodate ships forced to take longer routes, pushing container costs up by 160% since last year.
Food prices were also stuck at much higher levels, reducing the spending power of people on low incomes. Struggling Germany was one of the worst affected by higher food prices. Europe’s biggest economy had suffered a 16% increase in food prices above average wage growth since 2019 compared with a gap below 4% in Australia.
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The OECD is concerned that governments will seek to reduce spending deficits by increasing borrowing at huge cost when interest rates remain high.
“The bigger the debt, the bigger the amount is needed to pay interest bills … This will mean there is less money to spend on health, education and things like promoting growth,” Pereira said.
A separate survey of the world’s most senior economists published on Wednesday by the World Economic Forum found that a majority were concerned by rising levels of government debt.
More than half said they feared high public debts would either harm efforts to boost growth, pose a risk to financial stability or limit the resources available to governments to prepare for the next economic crisis.
Commenting on the OECD findings, the UK chancellor, Rachel Reeves, said: “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.
“Next month’s budget will be about fixing the foundations, so we can deliver on the promise of change and rebuild Britain.”