The country’s economic outlook is becoming more optimistic. The OECD forecasts GDP growth of 1.1 per cent in 2024, rising slightly to 1.2 per cent in 2025, a marked improvement from the mere 0.1 per cent expected in 2023. Inflationary pressures are also easing, particularly with energy prices stabilising. Nevertheless, persistent price pressures are set to keep core inflation elevated, with forecasts of 3.7 per cent in 2024 and 2.8 per cent in 2025. As a result, monetary policy is expected to remain restrictive to combat the lingering inflationary threat.

The government’s substantial financial support during the COVID-19 pandemic and the energy price crisis has been scaled back, but it has contributed to higher public debt levels. In addition, the government is facing increased spending pressures due to an ageing population and the need for significant investments to support the climate transition. Tax reforms, particularly those aimed at reducing tax exemptions and improving compliance, could play a critical role in rebuilding fiscal space and reducing economic distortions, as per OECD.

One of the major factors holding back UK economic growth is low investment, which has contributed to sluggish productivity since the global financial crisis. The OECD suggests that a transparent government strategy aimed at boosting business investment could unlock the UK’s growth potential. Improving access to finance, particularly for small and innovative firms, will be key. Furthermore, the corporate tax system’s full expensing provisions and interest rate deductibility should be closely monitored to ensure they do not inadvertently subsidise unprofitable investments.

On the employment front, growth has remained weak since the pandemic, with increasing inactivity largely driven by long-term illness. The OECD recommends reforms to the work capability assessment, ensuring that income support is not dependent on being deemed unfit for work, which could help raise labour force participation. Additionally, successfully implementing expanded childcare support alongside apprenticeship reforms—particularly those focused on hiring and training young, lower-skilled workers and early school leavers—would be crucial for bolstering employment growth.

Fibre2Fashion News Desk (DP)