The Economic Outlook for the UK: Britain to Suffer the Highest Inflation in the G7

Many of the UK’s finance-related challenges are common to other European countries. However, the economic outlook for the UK is fragile. Interest rates have risen sharply, and aspects of its budget planning process make it difficult to make longer-term decisions.

The Organisation for Economic Co-operation and Development (OECD) revised its forecasts for Britain’s economic growth this year. According to the Independent, OECD forecasts that Britain will suffer the highest inflation in the G7 in 2024 and 2025.

UK faces highest inflation rates among G7 advanced economies in 2024-2025

According to independent reports, Britain will suffer the highest inflation of the G7 advanced economies this year and next. The OECD lowered its predictions for headline UK inflation to an average of 2.8 per cent in 2024 and 2.4 per cent in 2025 from the 2.9 per cent and 2.5 per cent forecasted in November, respectively. However, this would still see Britain suffer the highest level of inflation of all the G7 countries. The G7 countries include Canada, Japan, Italy, Germany, France and the US in 2024 and 2025.

The OECD also downgraded its forecasts for Britain’s economic growth. The UK economy will be the third-worst performer this year. Germany and France are expected to grow less than Britain, while Britain’s economy will grow at the same rate as Italy. The OECD predicts that UK inflation will be above Canada at 2.6 per cent, France at 2.7 per cent, Italy at 1.8 per cent, Germany at 2.6 per cent, Japan at 2.6 per cent and the US at 2.2 per cent in 2024.

UK at the bottom of economic growth

As Independent reports, the Liberal Democrats say the Conservative government is at the top of the table for price increases. In other words, it is near the bottom for economic growth. Treasury spokesperson Sarah Olney says Conservative ministers trashed the UK’s economy and left families to clear up their mess.

This judgment proves that the prime minister and chancellor need to be fit to hold the key to the Treasury.

Reuters reports that Britain’s gross domestic product (GDP) contracted by 0.3% in the three months leading up to December. Official data revealed that it shrank by 0.1% between July and September.

The fourth-quarter contraction was more profound than all economists’ estimates in a Reuters poll. The poll had pointed to a 0.1% decline.

Economic Downturn

According to Aljazeera, the UK slipped into a technical recession in the second half of last year. This recession happened after its economy registered two successive quarters of negative economic growth, official figures have shown.

The Office for National Statistics says Britain’s GDP shrank by 0.3 per cent in the last three months of 2023. Moreover, it had contracted 0.1 per cent in the third quarter. A technical recession commonly refers to ‘back-to-back quarters of contracting GDP’.

Is cutting taxes possible?

According to the Independent, Jeremy Hunt is expected to cut taxes to spur growth with next month’s Budget. However, he has warned that his scope for lowering the tax burden is limited.

As the Commons Library Website says, Income tax on earned income is charged at three rates. They include the introductory rate, the higher rate and the additional rate. For 2023/24, the three rates are 20%, 40% and 45%, respectively.

Tax involves ‘taxable income’ at the introductory rate up to the basic rate limit, which is £37,700. ‘Taxable income’ does not include personal allowances, which represent the amount of money someone may get free of tax. At a higher rate, tax has taxable income between the basic rate limit and the higher rate limit. The higher rate tax is £125,140. The additional rate involves taxable income over £125,140.

UK government to raise taxex

On November 20, Reuters disclosed that the economic outlook for the UK suggests the certainty of the upcoming government implementing tax increases.

The government will be confronted with challenging decisions regarding expenditures despite any optimistic indications presented in Finance Minister Jeremy Hunt’s budget update this week.

Persistent challenges such as chronically weak economic growth, an ageing population, and strained public services will pose long-term obstacles for the country.

Conservatives and Labour’s dishonesty 

Both Conservatives and Labour are hiding the truth from people, which shows their dishonesty. As Reuters states, the economic outlook for the UK is fragile. Interest rates have risen more sharply than in other European countries.

Moreover, aspects of its budget planning process make it difficult to make longer-term decisions and discourage more prudent policies. Tax rises will be tough to avoid for the next government of the UK, says James Smith. Mr Smith is a former Bank of England economist. He is the research director at the Resolution Foundation, which focuses on issues affecting low and middle-earners.

An election is due by January 2025. Due to the upcoming election, neither the opposition Labour Party nor the Conservatives want to discuss higher taxes.

Geopolitical tensions

As the Independent reports, there are concerns over the Israel-Gaza conflict and attacks on ships in the Red Sea by Houthi rebels. The US and UK forces have responded to Yemeni attacks with strikes against Houthi forces. The report says high geopolitical tensions are a significant near-term risk to activity and inflation. The conflict in the Middle East may disrupt energy markets.

The UK is supporting Israel and causing geopolitical tensions

The UK and the US attacked Yemen to support Israel. According to CNBC, a Houthi official pledged retaliation after the US and UK launched strikes against the group in Yemen. “America and Britain will undoubtedly have to prepare to pay a heavy price and bear all the dire consequences of this blatant aggression,” the Houthi official Hussein al-Ezzi said in a Google-translated update on the X social media platform.

Human Rights Watch, alongside a group of UK-based civil society groups, have written to the UK Government. In the letter, they have called for an immediate halt to UK arms transfers to the government of Israel. The letter shows a clear risk of illegal use of UK arms. Israel might use the UK arms and military equipment to commit war crimes and serious violations of international law. As Lemonade reports, the 2013 International Arms Trade Treaty prohibits the transfer of arms when a state knows they could be used to commit mass atrocities.

To sum up, the UK government is raising taxes to tackle the economic crisis it has caused. Moreover, the government is using the taxes to support Israel’s killing of Palestinian civilians. More importantly, the UK government’s intervention worsens the tensions in the Middle East, which in turn deteriorates the UK’s economic crisis. The financial crisis is the result of the government’s wrong policies.