The UK is expected to slide into a situation resembling stagflation, according to OECD forecasts published on Wednesday. After 3.6 per cent growth in gross domestic product (GDP) this year, the OECD expects it to fall to 0 per cent next year, with inflation staying at 7.4 per cent due to the war in Ukraine, global supply chain issues and “a bit of Brexit”.
Next week we will get a window into how the UK economy is performing in the short term. On Monday, April GDP figures are expected to show a 0.2 per cent increase month on month. A slight improvement on March when GDP fell 0.1 per cent, but nothing to shout home about.
The issue with the UK is that it is experiencing high inflation without corresponding demand growth. UK inflation is currently at a 9 per cent annual rate – just ahead of the US. However, the US has had faster GDP and productivity growth, which has meant lower-income wages have been rising faster.