The UK will be the worst-performing economy in the G7 next year, according to the Organisation for Economic Cooperation and Development, as high interest rates and the lingering effects of last year’s surge in inflation drag on growth. In a downbeat assessment, the Paris-based thinktank also downgraded its forecast for UK growth this year to 0.4% from a November forecast of 0.7%. The UK will fall to the bottom of the G7 growth league in 2025, the OECD predicts, with growth of 1%, just behind Germany at 1.1%. US and Canada are forecast to be the fastest growing economies the G7 next year, both growing 1.8%. The OECD said Britain’s growth rate would be dampened by persistent price rises in the services sector and shortages of skilled staff that will push back expected cuts in interest rates. The thinktank expects the Bank of England to delay the first cut in interest rates from 5.25% until the autumn after fears that prices growth could rebound. The assessment followed a more optimistic outlook for the global economy, which the OECD said was gaining in strength despite the threat of worsening conflicts in Ukraine and the Middle East. “There are some signs that the global outlook has started to brighten, even though growth remains modest,” it said in a half-yearly health check. Global GDP growth is projected to be 3.1% in 2024, unchanged from 2023, before edging up at 3.2% in 2025 helped by stronger growth in household incomes and lower interest rates. IGrowth rates in France and Germany were also downgraded while the US economy has accelerated according to the OECD. Germany was expected to grow by 0.2% this year, down from last year’s forecast of 0.6%, while France is expected to grow by 0.7%, down from the 0.8% predicted last November. A recovery is expected in the eurozone while growth moderates in the US, India and other emerging-market economies. Annual consumer price inflation in the G20 economies – which includes the UK, Brazil, Saudi Arabia, France and Mexico – is projected to ease gradually, helped by fading cost pressures, declining to 3.6% in 2025 from 5.9% in 2024. “By the end of 2025, inflation is projected to be back on target in most major economies,” the report said. Governments representing much of the world’s output are expected to keep a tight rein on spending, even as interest rates begin to decline, allowing the effect of cheaper money rather than public spending to ease the cost of living crisis facing many low- and middle-income groups. In a warning to the UK government, the OECD said the chancellor, Jeremy Hunt, “should remain prudent and focus on productivity-enhancing public investment”. Any loosening of the public purse strings should happen only after interest rates have fallen back, it said, predicting that the Bank of England will reduce the cost of borrowing from 5.25% to 3.75% by the end of next year. “Fiscal prudence is required as inflation remains above target, and spending is to be directed towards supply enhancing investment, including infrastructure, the National Health Service, and adult skills,” the report said. “Proceeding with the childcare reform will help tackle economic inactivity, but requires contingent planning to address potential bottlenecks, in particular likely staff shortages.” Cuts to Whitehall budgets already in the pipeline would reduce the government’s spending deficit from 4.6% this year to 3.5% next year, it added. Hunt said: “This forecast is not particularly surprising given our priority for the last year has been to tackle inflation with higher interest rates. “But now we are winning that war, growth matters which is why it is significant that last month the IMF predicted the UK will grow faster over the next six years than any European G7 country or Japan. To sustain that we need to stick to our plan – competitive taxes, a flexible labour market and far-reaching welfare reform.” A bounce back in GDP during 2025 of 1% would be half that projected by the Treasury’s independent forecaster, the Office for Budget Responsibility (OBR). The OBR has forecast that the UK’s growth rate will rise to 1.9% next year after a steep fall in interest rates and inflation.