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UK economy to grow slower than previously predicted in 2022, says OECD

Economist at the OECD have downgraded their projections for UK economic growth (Victoria Jones/PA) (PA Wire)
Economist at the OECD have downgraded their projections for UK economic growth (Victoria Jones/PA) (PA Wire)

The UK economy will grow less than previously predicted this year and flatline entirely in 2023, according to a new report.

The OECD (Organisation for Economic Co-operation and Development) said it has downgraded its current annual projection for the UK economy due to “declining real incomes and disruptions in energy markets”.

Gross Domestic Product (GDP) is set to grow by 3.4% in 2022 as a whole, the body said in its interim outlook report.

In June, the body said the economy was likely to grow by 3.6%.

It comes days after the Bank of England said the UK economy could already be in recession, forecasting that there was likely to be a 0.1% decline in GDP over the current financial quarter.

The OECD also forecast that GDP will stay completely flat in 2023 in the UK.

Germany and Russia are the only two countries in the G20 set for a weaker economic performance next year, with projections of 0.7% and 4.5% declines in GDP respectively, according to the report.

The G20 as a whole is expected to see 2.2% economic growth for the year, a 0.6 percentage point decline compared with the previous forecasts.

OECD secretary-general Mathias Cormann said that governments should only provide shorter-term support to people during the crisis, or risk making it worse.

“Governments have already provided significant fiscal support during the pandemic, and we do not know how long this energy crisis will last,” he said.

“It is important that near-term fiscal support remains targeted and temporary and that governments do not provide further persistent fiscal stimulus which could exacerbate inflationary pressures and risk long-term fiscal sustainability.”

He also said that vulnerability to high gas prices “comes from the delay in implementing the green transition”.

“Near-term energy security and affordability, supply diversification, energy efficiency and demand-side measures are urgent priorities in the short-term which should be accompanied by stronger policy measures to enhance investment in clean technologies,” Mr Cormann said.

Investments in clean energy are particularly needed to improve energy security and affordability and to help achieve energy transition goals and to ease pressure on the availability of gas used as a transition fuel.”

The world will need around 1.3 trillion dollars (£1.2 trillion) of extra investment in the transition every year by the end of this decade.

OECD economist Alvaro Santos Pereira said that Europe would need to reduce its use of gas this winter or face potential shortages.

“The European economies will not run into a problem if you have more supply and also reduce demand,” he said.

“Reducing demand by between 10% and 15% will be crucial to avoid gas disruptions in the winter.”

The organisation’s analysis showed that if gas prices were to rise by another 50% it would shave another 1.3% off GDP across European OECD members and add 1.4% to inflation.