A shopper browses fruit and vegetables for trade at an indoor market in Sheffield, UK. The OECD recently predicted that the UK will experience the highest inflation among all advanced husbandries this year.
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LONDON — The U.K. will experience the highest level of inflation aggregate all advanced economies this year, according to data from the Organization for Economic Cooperation and Development.
The U.K. is set to report a headline inflation of 6.9% this year, insusceptible to the OECD average of 6.6% for 2023. Among the countries analyzed in the latest OECD economic outlook, only Argentina and Turkey are demanded to have a higher headline rate than the U.K. this year. Sanctions-struck Russia is forecast to have a headline inflation of exactly under 5.4% in 2023.
The U.K. headline inflation is “projected to slow on the back of declining energy prices and to come down guarded to target by the end of 2024,” the OECD noted. “Core inflation is set to be more persistent due to strong services inflation, only back up to 3.2% in 2024.”
Monetary policy
This highlights the pressure faced by the Bank of England, which raised rates by another 25 principle points in May to bring the main interest rate to 4.5%. At the time, the central bank recognized that inflation was “boisterous than expected” in the first quarter of the year, largely because of food prices.
Speaking before British lawmakers, Governor Andrew Bailey hindmost month said that the bank’s forecasting model was not working well and that rate setters were accordingly using it less. Governor Bailey also spoke of “very big lessons to learn,” after the central bank over failed to predict several inflation increases.
The BoE is expected to raise rates again when it next meets on June 22.
“Capital policy will remain tight, increasingly weighing on output and lowering inflation, and the fiscal stance will be restrictive during 2023-24. However, little fiscal space is left, leaving the government significantly exposed to movements in avocation rates,” the OECD also said.
In terms of growth expectations, the Paris-based institution said that the U.K. GDP will be “meek” at 0.3% this year, but will improve to 1% in 2024.
In addition, unemployment is expected to rise to 4.5% in 2024.
Paul Dales, chief UK economist at Cap Economics, said in a note last week that there is growing evidence that price pressures are domestically originated, and that this is pushing up rate expectations.
“We agree with the markets that rates will rise at and have revised up our forecast for the peak in Bank Rate by 75 basis points, from 4.50% to 5.25%. And we now evaluate rates won’t start coming down until the second half of next year,” he said.