The UK economy will grow slower than previously forecast this year and flatten out completely in 2023, according to a new report.
The Organization for Economic Co-operation and Development (OECD) said it had lowered its current full-year forecast for the UK economy due to “declining real incomes and turmoil in energy markets”.
UK GDP is expected to grow by 3.4% in 2022, compared to the 3.6% forecast three months ago, the agency said in an interim outlook report.
Britain’s central bank, the Bank of England, said on Thursday that the UK economy was already in recession.
The bank had previously expected the economy to grow this quarter, but now expects GDP to decline by 0.1%.
The OECD also expects UK GDP to flatten out completely in 2023, while the G20 countries as a whole are expected to grow by 2.2%.
Germany and Russia are the only two G20 countries whose economic performance will decline next year, according to the report, with GDP projected to decline by 0.7% and 4.5% respectively.
Last Friday, in an attempt to boost economic growth, Prime Minister Liz Truss’ new government announced the biggest tax cut package in half a century, borrowing more than £70 billion ($75 billion).
The tax cuts came a day after the Bank of England raised borrowing costs by another 0.5%, but Prime Minister Kwassi Kwarten gave no details on how the UK’s debt will be reduced as a percentage of GDP. The medium-term financial plan is “soon.”
Business leaders welcomed Kwarten’s so-called mini-budget, but those who criticized the government for pushing public debt to unsustainable levels saw it as a big gamble.
Kwarteng further shook the market on Sunday by saying “more are coming” on tax cuts.
Nervous investors sold off short-term UK government bonds as quickly as possible, and the pound fell to a record low of $1.03 on Monday morning.
However, the pound rallied to $1.09 on Monday afternoon as speculation in financial markets over imminent emergency measures by the Bank of England to stabilize the pound increased.
PA Media contributed to this report.