UK growth will trail Italy, France and Germany next year, says OECD

Italy, France and Germany will grow faster than Britain next year as Brexit uncertainty continues to weigh on consumer confidence and deter much-needed business investment, according to the latest economic forecasts by the Organisation for Economic Cooperation and Development.

The UK’s GDP growth will drop from 1.6% this year to 1% next year, in line with the OECD’s previous forecast, but Italy’s national income will grow by 1.2% in 2018, up 0.4 percentage points from the forecast in the June.

Germany and France were already on course to beat the UK with growth rates of 2.1% and 1.6% respectively in line with a bounce-back in activity across the eurozone.

The OECD said: “In the United Kingdom, GDP growth has continued to slow with an easing of consumption and investment growth. A further slowing is expected in 2018, while uncertainty remains over the outcome of negotiations around Brexit.”

The forecasts put pressure on the chancellor Philip Hammond to lift the economy with a spending boost in his autumn budget on 22 November. Ministers are understood to be lobbying the Treasury for extra cash to offset planned cuts to services and to cover a wage rise for public sector workers.

MPs are also concerned that private sector investment will be mothballed while Brexit talks continue, damaging the economy’s long-term growth rate.

Conservative MP Nicky Morgan, who chairs parliament’s treasury select committee, said: “We have been hearing for some time that business investment has been slowing down and today’s OECD report bears that out and crystallises the fears that many of us had about Brexit dragging down our economy.”

Liberal Democrat leader Sir Vince Cable said: “Brexit is set to turn Britain into the sick man of Europe again.”

Shadow chancellor John McDonnell urged the government to change course on the economy to prevent a slump in investment. He also highlighted the OECD warning that a bubble in the housing market remained a threat to the UK’s financial stability, especially with an increase in interest rates by the Bank of England possible before the end of the year.

The OECD said: “Britain’s labour market remained robust after a fall in unemployment to below 4.5% and record level of employment. But weak productivity and real wage growth persist.

“The depreciation of the sterling has modestly improved export prospects but also pushed up inflation, dampening purchasing power and private consumption.”

It added: “In the United Kingdom, house prices are elevated relative to rents, raising financial stability risks if rising interest rates were to trigger a housing market correction.”

Japan, which has suffered from one of the slowest growth rates in the G7 for the past 25 years, will also see its GDP growth rate accelerate to a higher level than the UK’s in 2018 after the Paris-based club for the world’s richest countries revised its economic outlook for next year.

The US and Canada will also enjoy strong growth in 2018, leaving the UK to sit at the bottom of the G7 growth league.

Economists at the OECD were among many forecasters to predict a slump in Britain’s fortunes following the referendum, but were forced to revise their thinking following a strong recovery in the second half of last year that sent the growth rate for 2016 to 1.8%.

A slowdown in the first quarter of 2017 to 0.2% and 0.3% in the second appears to show that the slowdown was delayed.

Global GDP growth is projected to increase to about 3.5% in 2017 and 3.7% in 2018 from 3% in 2016, slightly improved since the organisation’s last economic outlook.

It said: “The recovery of business investment and trade remains weaker than needed to sustain healthy productivity growth. Wage growth has been disappointing, keeping inflation at low levels. Strong future growth in emerging market economies will depend on deeper reform.

A Treasury spokesman said: “Our economy has grown continuously for four years and a record number of people are in work.

“This is a strong record but we are not complacent. We must continue our focus on restoring productivity growth which is the only sustainable way to deliver higher wages and higher living standards for people across the country.”

The OECD said: “The upturn has become more synchronised across countries. Investment, employment and trade are expanding.”

However, it warned that “strong and sustained medium-term global growth is not yet secured”.