The Organisation for Economic Co-operation and Development (OECD) has just confirmed what we already knew: Britain will be hit harder than almost anywhere else by the economic fallout triggered by the war in Iran.
Updated OECD forecasts released today slashed predictions of UK growth for this year to just 0.7 per cent from the 1.2 per cent previously expected. That’s a larger downgrade than any other G20 country.
On inflation, the Washington-based organisation expects UK inflation to hit 4 per cent – the second highest in the G7.
The causes are clear: an energy price hike, prolonged in nature, that simultaneously makes everything more expensive, reduces supply and destroys consumer demand. The result is even more stark: stagflation.
That puts the Bank of England in a tricky position. With inflation set to spike, the obvious – and only – thing to do is hike interest rates. But in doing so you make the demand shock even worse and slam the brakes on already anaemic growth.
It makes things even more difficult for the government, whose economic message has gone from ‘the Tories left us a black hole’, to ‘we’ve fixed the foundations’, to ‘we’re turning a corner’, to ‘oh no, we’ve slammed into a wall’.
In response to the updated figures, Rachel Reeves said:
The war in the Middle East is not one that we started, nor is it a war that we have joined. But it is a war that will have an impact on our country.
In an uncertain world we have the right economic plan. The decisions we have taken have put us in a better position to protect the country’s finances and family finances from global instability.
What Reeves fails to address is why it is that Britain is almost uniquely ill-equipped to deal with this latest economic shock. The answer is that successive governments have done next to nothing to build energy security. And Reeves has made certain that we entered this crisis with the highest inflation in the G7, thanks to tax raids that have materially increased the cost of employment.
It is already inexcusable that Britain’s leaders did the square root of heehaw to fix our energy security after the Russia-Ukraine gas shock. To not fix it now – whatever Ed Miliband might want – would be an act of national malice.
Comments