But it’s good to have independent confirmation that the fury over Labour’s brutal Budget is more than just political noise. It’s grounded in fact.
Today, in its annual economic survey, the Organisation for Economic Co-operation and Development (OECD) gave its verdict on the Budget. And it isn’t good.
Reeves has destroyed hopes that inflation was on the run and the cost-of-living crisis was over.
Things were looking up as consumer price inflation slumped to just 1.7% in September, but the OECD says it will rebound to 2.7% next year, thanks to the Budget.
It could be even higher. The Bank of England forecasts 3%.
Forecasts must be taken with a huge pinch of salt but the OECD and BoE both agree on one thing. Inflation is going back up and the Budget is to blame.
Much of the chancellor’s £40billion tax raid will fall on businesses, who will pass most of the cost onto consumers in the shape of higher prices
Hiking the minimum wage by an inflation-busting 6.7% will add more fuel to the inflationary fire. So will those public sector pay rises Labour waved through.
And that spells bad news for interest rates.
Before the Budget, Goldman Sachs predicted UK interest rates would fall from 4.75% today to just 2.75% in November next year.
That’s not going to happen now.
Today, the OECD said interest rates will fall to 3.5%, but not until 2026. We face two years of higher borrowing costs, squeezing mortgage borrowers,consumers and businesses.
Again, we know who’s to blame.
As well as on hitting us with an extra £40 billion in tax, Reeves will borrow an extra £30billion a year.
This will trigger a £70billion surge in public spending. Which will further drive up inflation and interest rates.
Reeves has also sunk UK economic growth.
In the first half of the year, when the hated Tories were in power, the economy grew 1.2%. After Labour took power growth collapsed to just 0.1% in the third quarter.
So that’s a total of 1.3% in the year to September 30.
So it’s odd to see the OECD predicting 2024 growth will total just 0.9%. Is it suggesting GDP will shrink in the final three months of 2024? By 0.4%?
It looks like it.
The process started in September, when GDP fell 0.1%. It’s not hard to imagine similar falls in October, November and December.
Also, I’m worried that the OECD is behind the times (these reports take months to prepare). It talks of positive momentum in retail sales, saying they’ve been “on an upward trend since early 2024”.
Yesterday, we learned that retail sales dropped 3.3% on November, thanks to, um, you-know-who. The upward trend has come to a juddering half.
That makes me worry about the OECD growth outlook for 2025. It’s pretty positive at 1.7%, filling me a splash of Christmas cheer.
Unfortunately, the OECD pinned the increase on “the large increase in public expenditure set out in the autumn Budget”.
Basically, Reeves is generating growth by taxing and spending, at the price of driving the national debt even higher.
Once her spree washes through the system, growth will slow to 1.3% in 2026.
Forecasts aren’t set in stone. I’m hoping the OECD is wrong, and the Budget will be less damaging than it looks today. I fear it could be even worse.
