Headline inflation is declining, but core inflation remains persistent in many economies, “held up by cost pressures and high margins in some sectors”, according to the OECD.
As part of its latest economic outlook, inflation is projected to fall gradually over 2023 and 2024, but will remain above central bank objectives in most economies.
Headline inflation in the G20 economies is projected to ease to six per cent in 2023 and 4.8 per cent in 2024, with core inflation in the G20 advanced economies declining from 4.3 per cent this year to 2.8 per cent in 2024.
For the UK, the 9.1 per cent headline inflation in 2022 is expected to decline to an average 7.2 per cent in 2023, some 0.3 percentage points higher than estimated in June (6.9 per cent). Of the G20 nations, excluding Turkey and Argentina, the UK is set to have the highest rate of inflation in 2023.
But its interim projections for 2024 suggest inflation will fall back to 2.9 per cent. However, the OECD noted core inflation – excluding volatile food, energy, alcohol and tobacco prices – will stand at 6.3 per cent in 2023, falling back to 3.8 per cent next year.
GDP growth
Turning to global GDP growth, the OECD projects this to remain “sub-par” in 2023 and 2024, at three per cent and 2.7 per cent respectively, “held back by the macroeconomic policy tightening needed to rein in inflation”.
It suggests UK GDP growth will come in at 0.3 per cent in 2023 and 0.8 per cent in 2024.
The outlook read: “A key factor shaping global growth is the rise in interest rates in most major economies since early 2022. Financial conditions have become more restrictive, borrowing rates for firms and households have risen, credit conditions have tightened, and asset price growth has moderated or turned negative. Forward-looking real interest rates have now become positive in most economies, with Japan an exception, encouraging saving and making investment more expensive.
“House prices have fallen substantially from their peaks in some G20 countries, including Korea, Germany and the United Kingdom. At the same time, most countries have seen a sharp reduction in the volume of transactions and lending for house purchases, which may presage further weakness in housing markets. In the United States, the euro area and the United Kingdom, these declines are comparable in percentage terms to those seen at the time of the global financial crisis.”
UK inflation in the year to July came in at 6.8 per cent with the next reading (year to August) to be published tomorrow.
The Bank of England is also poised to raise the base rate from 5.25 per cent to 5.5 per cent at its next meeting to be held on Thursday 21 September.
