OECD trims UK growth to 1% weeks before Healey's first Budget
The IMF says Britain must get its debt service costs under control. Founders should read both as a signal about tax and borrowing this autumn.
The OECD cut its forecast for UK growth next year to 1%, down from 1.1%, in a report published on Wednesday.
It went the other way on this year, raising its UK forecast from 0.9% to 1.1%. The body said the economy had proved more resilient than expected.
Global growth next year was also marked down by 0.1%. Australia, Canada and the euro area were among those affected.
The timing matters. Chancellor John Healey delivers his first Budget next month, into an argument about debt costs that is now being run by the International Monetary Fund in public.
IMF managing director Kristalina Georgieva told the BBC that governments had let debt build while doing nothing about the cost of servicing it, and that it was time to act.
Higher oil prices are the pressure behind much of this. The OECD pointed to the conflict in the Middle East and the Russia-Ukraine war pushing up crude, and with it fuel, energy and inflation worldwide.
Inflation has in turn raised the interest bill on government debt. Government borrowing also surged unexpectedly in August, which narrows Healey's room further.
Ruth Gregory, deputy chief UK economist at Capital Economics, said the UK had so far remained resilient to higher energy prices, but largely because businesses had built up stock and households had cut what they put into savings. She said that effect is temporary and growth will be more muted next year.
Gregory also said debt interest payments, as a share of national output, are forecast to reach levels last seen in the mid-1980s.
Prime Minister Andy Burnham said on Wednesday that high borrowing had left the UK over-exposed to global shocks, while standing by his view from a year ago that Britain should be less in hock to bond market investors.
Chief Secretary to the Treasury Emma Reynolds said the economy was showing strong resilience despite conflict in the Middle East and Europe. Shadow chancellor Andrew Griffith said the government was looking for new ways to tax people while paying the highest borrowing interest rates in the G7.
For a founder, the practical reading is narrow. The government has manifesto commitments on tax and self-imposed fiscal rules, a rising interest bill, and pressure to spend more on defence and on household costs at the same time.
Input costs are the other half. Ryanair chief executive Michael O'Leary said ticket prices will be materially higher next summer because of oil, with the airline's fuel bill potentially rising by $1.5bn to $7.5bn. If an airline with that buying power is repricing, smaller businesses on energy-heavy inputs should assume the same direction.
The OECD also listed weaker-than-expected returns on AI investment among the risks to global growth, alongside climate-related supply shocks and continued trade uncertainty. Budget day next month is the date to plan cash and hiring around.