By David Milliken

LONDON (Reuters) – The OECD sharply upgraded its ranking for British economic growth this year and in 2025 on Wednesday, after previously predicting Britain would have the weakest growth of any Group of Seven country.

The Paris-based Organisation for Economic Cooperation and Development forecasts Britain’s economy will grow by 1.1% in 2024 and 1.2% in 2025, up from previous forecasts of 0.4% and 1.0%, aligning closely with Bank of England forecasts from last month.

The OECD’s broader global update to its forecasts now places Britain’s growth rate near most other Group of Seven countries this year and next, although it still lags behind the United States.

The higher UK growth forecast was initially published in a country-specific report two weeks ago. Britain’s economy outpaced most forecasts in the first half of 2024, leading to growth upgrades from other organizations, including the Bank of England.

“Faster economic growth figures are welcomed, but I know there is more to do, and that is why economic growth is the number one mission of this government,” finance minister Rachel Reeves stated in response to the latest OECD report.

The centre-left Labour Party celebrated a sweeping election victory in July. Reeves indicated she may alter the government’s fiscal rules regarding public debt, possibly allowing for increased borrowing to boost economic growth.

The OECD argued that the self-imposed targets, such as reducing debt as a share of economic output over five years, require revisions. The strict rules hinder large-scale public investment with longer planning horizons, without effectively preventing the overall debt burden from rising.

“The UK needs more investment, and thus we need to create fiscal space to achieve this,” OECD Chief Economist Alvaro Santos Pereira commented in a press conference.

The OECD criticized an “overly stringent and complex” planning system for obstructing business and housing investment, noted regional disparities in infrastructure spending, and pointed out a rise in labour market inactivity since the pandemic.

Despite the growth upgrades, the OECD anticipates that Britain will have the highest inflation among G7 countries in 2024 and 2025, predicting an average inflation rate of 2.7% in 2024 and 2.4% in 2025, only slightly changed from earlier forecasts.

British inflation stood at 2.2% in August, marginally above the central bank’s 2% target, with projections of an increase due to significant cost rises in domestically produced services and the diminishing impact of last year’s energy cost decline.

(Additional reporting by Leigh Thomas in Paris. Editing by William Schomberg and Christina Fincher)