The Organisation for Economic Co-operation and Development (OECD) upgraded many of its economic forecasts for other countries in 2018 but held the UK outlook constant at 1% growth. Of the G& economies, only Italy is expected to perform worse than the UK next year. This prediction comes partly from OECD’s assumption that the Brexit negotiations will not include a pre-trade agreement for the UK to replace the single market arrangement and also that the UK will trade on more restrictive WTO rules from April 2019.
The OECD has predicted that a hard Brexit will push Britain towards this situation, while advocating more borrowing and public spending which will come as a blow to the last leg of the Conservative campaign. Particularly because the OECD, according to the Financial Times, has traditionally supported austerity policies. The organisation raised concerns that household spending could decrease as real wage growth decreases following a weakening labour market and higher inflation. It flagged a concern regarding the purchasing power for consumers in an environment where exchange rate pass through to consumers is robust. The OECD said the Government should raise capital spending to support short term demand and increase long term supply, and not worry about balancing the books. Whilst the Financial Times deemed this analysis ‘pessimistic’, it also noted the optimism the OECD has shown in face of a potentially successful negotiation of closer trading ties with the EU.