The Chancellor has set a tight fiscal rule to decrease debt-to-GDP within five years, leaving only a £6.5bn buffer, the smallest since at least 2010. However, the OECD forecasted an upgrade in the UK’s growth in 2023 while warning that the narrow margin could hinder the weak recovery.
The OECD stated, “Significant risks surround the [UK] outlook. The high interest burden on public debt and the recent drop in average debt maturity leave the public finances exposed to movements in bond yields.”
The forecasts also pointed out that inflation in the UK has “broadened” and spread through different parts of the economy, usually indicating a persistent issue. The latest OECD data on Tuesday showed the UK with the highest rate of core inflation in the G7 in April, at 6.2%.
It’s expected that UK inflation will average 6.9% in 2023, which is more than triple the Bank of England’s 2% target. However, it will then drop to 2.8% the following year. The intergovernmental organization also revised up its expectation of interest rates from March, predicting that they will peak at 4.75% instead of 4.25%. Consequently, inflation will return close to the Bank’s 2% target by the end of next year.
