Blow for Brits as OECD downgrades UK's economic growth forecast for this year and warns country could be the worst performer in the G7 next year… while US rate cut delay delivers blow to hopes of early BoE move

The UK's growth forecasts have been downgraded by the OECD over fears sticky inflation is hitting the economy.

The international body expects 'sluggish' performance in 2024 and 2025 - with the country performing worse than any other G7 member next year. 

Chancellor Jeremy Hunt said the estimates were 'not surprising' but the government was 'winning the war' against spiralling prices. 

The report came as the US Federal Reserve played down hopes of early interest rate cuts, casting a shadow over the prospects of the Bank of England easing pressure on mortgage-payers soon. 

In its latest economic outlook report, the OECD pointed to 'some signs that the global outlook has started to brighten' amid easing inflation.

Global gross domestic product (GDP) is expected to grow by 3.1 per cent this year, unchanged from 2023.

However, the UK's economy is expected to grow at a much slower rate after interest rate rises in order to bring down inflation.

The economic organisation said 'GDP growth is projected to remain sluggish' in the face of a 'waning drag from past monetary tightening'.

The economy grew by 0.1 per cent last year and is expected to see growth improve to 0.4 per cent this year, according to the OECD.

However, that represents a downgrade after previously predicting 0.7 per cent growth for 2024.

It would be the second weakest growth across the G7, with only Germany – which has a growth forecast of 0.2 per cent – due to see a smaller increase.

The economy is predicted to expand by around 1 per cent next year. That is slower than projected for Germany and the other G7 nations – Canada, France, Italy, Japan and the US.

The OECD said higher wages will help consumer spending over the next two years but could contribute to inflationary pressure as the Bank of England continues with efforts to get headline CPI inflation down to its 2 per cent target.

'Stronger real wage growth will support a modest pick-up in private consumption,' the report said.

'Headline inflation is expected to continue moderating towards target as energy and food prices have eased substantially, but persistent services price pressures will keep core inflation elevated at 3.3 per cent in 2024 and 2.5 per cent in 2025.'

It also predicts the Bank of England's Monetary Policy Committee (MPC) will start cutting interest rates – which currently sit at a 15-year-high of 5.25 per cent – in the third quarter of this year.

UK interest rates are on track to drop to 3.75 per cent by the end of 2025, it said.

Meanwhile, the UK's unemployment rate is expected to rise over the period.

The unemployment rate unexpectedly increased to 4.2 per cent for the latest three-month period to February.

The OECD said this is due to continue increasing and reach as high as 4.7 per cent in 2025 'as the labour market cools'.

Mr Hunt said: 'This forecast is not particularly surprising given our priority for the last year has been to tackle inflation with higher interest rates.

'But, now we are winning that war, growth matters, which is why it is significant that last month the IMF predicted the UK will grow faster over the next six years than any European G7 country or Japan.

'To sustain that we need to stick to our plan – competitive taxes, a flexible labour market and far-reaching welfare reform.'