The UK is expected to have the highest rate of inflation of all advanced economies this year

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A shopper browses fruit and vegetables for sale at an indoor market in Sheffield, UK. The OECD recently predicted that the UK will experience the highest inflation of all advanced economies this year.

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LONDON – The UK will experience the highest rate of inflation among all advanced economies this year, according to data from the Organization for Economic Co-operation and Development.

The UK is expected to report headline inflation of 6.9% this year, above the OECD average of 6.6% for 2023. Among the countries surveyed in the latest OECD economic outlook, no ‘ expect only Argentina and Turkey which have a head level higher than the highest level. UK this year. Sanctions-hit Russia is expected to have headline inflation of just under 5.4% in 2023.

UK headline inflation is expected to “slow on the back of falling energy prices and come down close to target by the end of 2024,” the OECD said. due to strong inflation in services, decreasing to 3.2% in 2024.”

Monetary policy

This highlights the pressure on the Bank of England, which raised rates by another 25 basis points in May to take its key interest rate to 4.5%. At the time, the central bank acknowledged that inflation was “higher than expected” in the first quarter of the year, largely due to food prices.

Speaking before British lawmakers, Governor Andrew Bailey said last month that the bank’s forecasting model was not working well and that rate setters were therefore using it less. Governor Bailey also spoke of “very big lessons to be learned,” after the central bank failed again to predict several inflation hikes.

The BoE is expected to raise rates again when they meet on June 22.

“Monetary policy will remain tight, increasing pressure on output and reducing inflation, and the fiscal position will be tight over 2023-24. However, there is little fiscal space left, leaving the government highly exposed to movements in interest rates,” the OECD also said.

In terms of growth prospects, the Paris-based institution said UK GDP would be “modest” at 0.3% this year, but would improve to 1% in 2024.

In addition, unemployment is expected to rise to 4.5% in 2024.

Paul Dales, the UK’s chief economist at Capital Economics, said in a note last week that there is increasing evidence that price pressures are being created at home, and that this is pushing up rates.

“We agree with the markets that rates will rise further and have revised our forecast for the highest level in Bank Rate by 75 basis points, from 4.50% to 5.25%.” next year,” he said.

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