The UK’s economy will grow more slowly than first thought in 2022, and grind to a halt next year, experts have warned.
The Organisation for Economic Co-operation and Development (OECD) said global growth is slowing due to the war in Ukraine.
The international organisation projected that UK GDP (gross domestic product) will grow by 3.64% this year. In December it had forecast 4.75% growth.
Shortages of workers and supplies, alongside high energy prices, will push inflation to peak at more than 10% this year. It will decline to 4.7% by the end of next year.
But because workers are in short supply, unemployment will remain low, the experts said.
It comes alongside a global slowdown due which is in large part due to the war in Ukraine.
Global growth has been downgraded from 4.46% to 3.02%, the OECD said. Only Argentina and Australia saw their growth projections upgraded.
“The world is paying a heavy price for Russia’s war in Ukraine. It is a humanitarian disaster, killing thousands and forcing millions from their homes,” the organisation said.
“The war has also triggered a cost-of-living crisis, affecting people worldwide.
“When coupled with China’s zero-Covid policy, the war has set the global economy on a course of slower growth and rising inflation – a situation not seen since the 1970s.
“Rising inflation, largely driven by steep increases in the price of energy and food, is causing hardship for low-income people and raising serious food security risks in the world’s poorest economies.”
The warning came shortly after the World Bank said that some countries in Europe and Africa will face major recessions due to the war.
It said growth is likely to be subdued throughout the decade because investment is weak around the world.
The OECD said that, while the UK has limited direct financial and trade links to Russia and Ukraine, it will still be affected by higher energy prices.
As a result, household incomes are declining in real terms.
This will mean that people start consuming less than they have in the past, the OECD said, which will cause GDP growth to stagnate next year.
“Household savings will decline to below pre-pandemic levels, with some households taking on more debt to keep up with the rising cost of living,” it said.
In turn, reduced demand will mean that the need for workers eases and unemployment will gradually increase to 4.5% by the end of next year.
In addition, the OECD said the UK should accelerate its progress on cutting carbon emissions, which will also increase its energy security.
“Policies in place are not yet sufficient to deliver the net-zero target,” it said.
“The Government can stimulate the necessary investment by being clearer about its approach to the transition to a net-zero economy and developing an economy-wide plan with concrete deadlines, policies and priorities in line with a target-consistent emission pricing trajectory.”