One of the world’s top economic officials has warned the UK that borrowing is likely to remain expensive until the rate of price increases slows further and remains at that level.
Interest rates, which are post-2008 era high of 5.25%it should stay there, according to the Organization for Economic Co-operation and Development (OECD).
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“The mix of fiscal and monetary policies is appropriately restrictive and should remain so until inflation returns to target on a lasting basis,” states the OECD economic outlook for 2024.
It is an endorsement of the approach of bank of england whose statements on inflation did not indicate an imminent rate cut.
UK predictions
The developed nations club report also said the UK economy will “remain sluggish” with gross domestic product (GDP), a measure of everything produced in the economy, expected to grow 0.4% this year and 1 % in 2025.
Good news is expected for UK workers as the OECD has said there will be “stronger” wage growth when inflation is factored in against wages.
This, in turn, will support a “modest increase” in the amount that households are consuming.
But the rate of price increases will continue, the OECD said, with inflation expected to be “elevated” by 3.3% in 2024 and 2.5% in 2025 – above the Bank’s 2% target.
These forecasts reinforce the idea that those responsible for setting rates at the Bank could keep rates higher for longer to remove money from the economy, in an attempt to stop price increases.
No rate cuts will occur until at least August, the OECD added.
If inflation forecasts come true, the UK will not be the worst performer among the G20 group of industrialized countries. The average among this group of countries will be 5.9% this year and 3.6% next year.
This story originally appeared on News.sky.com read the full story
