The OECD has upgraded its outlook for the UK economy, forecasting that new government measures will provide a boost to growth in the coming months. The revision offers a brighter picture for Britain as it navigates a period of sluggish output and persistent inflationary pressure.
The improved assessment comes as the pound dipped below $1.33 against the US dollar, with analysts attributing the move to a stronger dollar driven by expectations of further interest rate hikes in the United States. Matthew Ryan, head of market strategy at the financial services firm Ebury, said investors were prioritising hawkish Federal Reserve rhetoric and the upward repricing of US rates over any tailwinds to the UK economy from falling global oil prices.
Oil prices fell for a sixth consecutive day, marking their longest losing streak in more than a year. The decline was supported by reports that Saudi Arabia has restarted its east-west pipeline and by hopes for progress in talks between the United States and Iran. Lower energy costs could offer some relief to UK growth, though the Bank of England has placed significant weight on the energy crisis in determining the path of its policy rate.
Ryan noted that the recent pullback in oil prices should undercut the case for rate hikes just as much as it offers relief to UK growth. The Bank of England has suggested that any increases in borrowing costs would be effectively contingent on a continuation of the conflict driving energy prices higher.
Despite the improved OECD forecast, September has brought a worrying combination of disappointingly sluggish economic growth and intensifying inflationary pressures. Business confidence remains subdued and high costs continue to discourage hiring, according to the latest surveys.
Output growth across the manufacturing and services PMI surveys has slowed to a pace consistent with the economy growing at a mere 0.1% quarterly rate. That figure underscores the fragility of the UK's recovery even as the OECD points to government measures as a source of support.
The pound's slide below $1.33 reflects the broader strength of the dollar rather than a deterioration in UK fundamentals, according to market strategists. The currency has weakened against a number of major counterparts as investors position for higher US interest rates.
The OECD's upgraded forecast suggests that fiscal or regulatory measures introduced by the government are expected to lift economic activity, though the precise scale of the boost remains to be seen. The organisation's assessment adds to a mixed picture for the UK, where lower oil prices and policy support are offset by weak demand and cost pressures.
Economists will be watching forthcoming data closely to gauge whether the government's measures can translate into sustained growth. The Bank of England's next policy decision will also be critical, as it weighs the risk of persistent inflation against signs of economic weakness.
For now, the OECD's revision provides a measure of optimism, but the underlying challenges facing the UK economy remain substantial. Sluggish output, cautious businesses and a strong dollar continue to shape the outlook.