Forecast slashed

UK growth to be worst of developed nations

Rishi Sunak is presiding over an economy falling to the foot of the G7 table

Further pressure mounted on the Chancellor to cut taxes as a think tank said the UK economy will stop growing next year with only sanctions-hit Russia performing worse among leading economies.

In its bi-annual economic outlook, the Paris-based Organisation for Economic Cooperation and Development (OECD) urged the UK government to row back on tight fiscal measures, warning that recent increases in taxes will contribute to zero growth in 2023.

In a further knock to prospects, the British Chambers of Commerce downgraded its outlook for growth next year to 0.6% before recovering slightly to 1.2% in 2024. It expects a UK unemployment rate of 3.8% in 2022, 3.9% in 2023 and 2024.

The OECD says the UK economy will expand by 3.6% this year – the second-fastest rate among the Group of Seven advanced nations after Canada – before plunging to the foot of the table. All other G7 countries will grow by more than 1%.

Laurence Boone, the think tank’s chief economist, said the UK was being hit by a combination of factors, including higher interest rates, higher taxes, reduced trade and more expensive energy.

The International Monetary Fund has said that the UK will be the slowest growing economy among the G7.

The FTSE 100 stubbornly remained flat, buoyed by weak sterling, but Wall Street moved lower amid ongoing economic uncertainty. The Dow Jones Industrial Average fell 0.8%, nearly 300 points, while the S&P 500 lost 1.1% and the tech-heavy Nasdaq Composite 0.7%. Oil jumped to a 13-week high.

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Tory MPs who gave Prime Minister Boris Johnson a second chance in a confidence vote on Monday are now clamouring for him to act amid speculation that he may replace Chancellor Rishi Sunak, who argues that cutting income tax and other personal taxes too quickly will fuel inflation.

Mr Sunak is expected to cut business levies in his autumn budget and has announced plans to trim income taxes by 2024.

But nervous Tories fearing a voter backlash in two forthcoming by-elections want him to bring forward cuts for both businesses and households to ease the cost of living crisis.

There are fears of further trouble for the government as inflation peaks at more than 10% at the end this year, likely to force the Bank of England to raise interest rates to 2.5% from 1%.

Households are already taking on debt to enable them to pay bills, while businesses will cut investment, rather than increase it as Mr Sunak hopes.

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