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Highlights
- OECD predicts global interest rates, including the UK, will decline more gradually than anticipated.
- UK’s 2024 GDP growth forecast reduced to 0.9%, with a boost to 1.7% for 2025.
- US growth forecasts raised to 2.4% for 2024, driven by strong consumption and wage increases.
The Organisation for Economic Co-operation and Development (OECD) has issued a warning about the pace of global interest rate cuts, emphasizing that central banks should proceed cautiously due to ongoing inflationary pressures in the services sector. In its December economic outlook, the OECD outlined concerns about premature rate reductions while revising growth forecasts for major economies, including the UK and the US.
Interest Rates to Decline Slowly
According to the OECD, the UK’s recent Budget measures, which include new tax and spending initiatives, are likely to delay the Bank of England’s timeline for cutting interest rates. While the base rate is projected to decline over the coming year, it is expected to reach 3.5% by early 2026, down from the current level of 4.75%.
The economic body stressed the importance of maintaining a careful balance, warning central banks against cutting rates too rapidly as persistent inflation in the services sector continues to pose challenges.
Revised Growth Forecasts for the UK
The OECD revised its economic growth outlook for the UK, lowering its GDP growth forecast for 2024 to 0.9% from the 1.1% projected in its September report. However, it raised its 2025 forecast to 1.7%, up from the previous estimate of 1.2%.
The UK economy is expected to benefit from the recent Budget, which is projected to provide a short-term boost, although this is tempered by the expectation of slower monetary policy easing. The combination of fiscal stimulus and a cautious approach to rate cuts reflects the complex economic landscape the UK faces heading into 2024.
Upbeat Forecasts for the US
In contrast, the OECD raised its growth expectations for the US, predicting GDP growth of 2.4% in 2024, up from the 1.6% forecast in September. This revision is attributed to robust household consumption and brisk wage growth, which are fueling economic momentum despite higher interest rates.
The stronger outlook for the US highlights its resilience in navigating global economic challenges and underscores the divergent growth trajectories of advanced economies.
Global Implications
The OECD’s projections indicate that while global economic conditions are stabilizing, inflationary pressures and the interplay of fiscal and monetary policies remain key factors shaping the outlook. For central banks, the challenge lies in balancing the need to support growth while keeping inflation under control.
Looking Ahead
As the world heads into 2024, the OECD’s insights provide a roadmap for navigating a complex economic environment. For the UK, the focus will remain on managing fiscal and monetary interactions to sustain growth. In the US, solid consumption and wage trends offer a foundation for continued economic expansion, albeit with ongoing vigilance around inflation.
These projections underscore the critical role of policy decisions in shaping the global economic landscape in the years to come.
