UK set for highest inflation of G7 group

The UK is set to have the steepest price increases of the entire G7 group as the OECD expects inflation to increase from the current 2.2% to 2.7% by the end of the year.

“The prices of over half the items in the United Kingdom inflation basket were still growing at an annual rate above 3% in July 2024…This points to some lingering underlying pressures,” the Organisation for Economic Cooperation and Development (OECD) said said in its latest outlook.

Inflation is expected to increase from 2.2% in August to 2.7% by the end of the year. UK inflation is on course to remain at 2.4% for 2025, rising at the fastest rate in the G7.

The G7 (Group of Seven) is an organisation of the world's seven largest so-called advanced or richest economies, which dominate global trade. They are Canada, France, Germany, Italy, Japan, the UK and the United States.

The Paris-based organisation added that services inflation was proving “particularly sticky” and "has abated only slowly". It noted that if core goods price inflation remained unchanged, annual services inflation would have to fall by 2.5 percentage points in the UK to bring core inflation back to the target.

By contrast, the UK’s growth outlook has been revised upwards by 0.7 percentage points to 1.1% this year and by 0.2 percentage points to 1.2% for 2025, leapfrogging Japan, Italy and Germany. Britain is now on a par with Canada and France but behind the US.

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Last time the OECD put out a forecast, in May, it had the UK at the bottom of the pile in the informal bloc of seven countries. The OECD’s chief economist, Álvaro Pereira, said he was surprised by the strength of the recovery earlier in the year after the UK economy contracted in 2023.

The OECD urged chancellor Rachel Reeves to not just to raise taxes but look at wider reforms of the tax system ahead of the budget in October.

Reeves said: “Faster economic growth figures are welcomed, but I know there is more to do and that is why economic growth is the number one mission of this government.

“Next month’s budget will be about fixing the foundations, so we can deliver on the promise of change and rebuild Britain.”

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The OECD wrote in its interim report on the world economy that global economic growth “has remained resilient and inflation has continued to moderate”.

It added: “Recent activity indicators suggest ongoing momentum, especially in services sectors. Real wage growth is now supporting household incomes and spending, though purchasing power has yet to fully return to pre-pandemic levels in many countries.

“Global trade is recovering faster than expected, but shipping costs remain elevated and export orders have recently moderated.”

But it added: “Significant risks remain. Persisting geopolitical and trade tensions could increasingly damage investment and raise import prices.”

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