The Organization for Economic Cooperation and Development has warned that the new strain of the Omicron virus risks causing further inflation as disease outbreaks limit production capacity and mobility in the labor market.
The Paris-based organization of rich nations raised its inflation forecast from three months ago.
“Even in more benign situations, the ongoing coronavirus outbreak is likely to continue to limit mobility in some regions and across borders,” said Laurence Boone, chief economist for the OECD. , with potential long-term consequences for labor markets and productive capacity, as well as prices. ”
Across its 38 members, the OECD now expects inflation to peak between 2021-22 at close to 5% before gradually pulling back to around 3% in 2023. UK inflation is forecast will peak at 4.9% in the first half of the year. next year due to higher energy prices and continued shortfall in supply, and then decline to 2% by the end of 2023.
The OECD believes that the main risk to the recovery is inflation continuing to rise higher and longer than expected, forcing major central banks to tighten monetary policy. It said banks should wait for supply tensions to ease and signaled that they would act if necessary.
Andrew Bailey, Governor of the Bank of England, said in a session organized by the British Institute and Faculty of Law yesterday that the economic impact of Covid-19 has faded since the start of the pandemic but still still strong.
“Even now, services are recovering but we still have a pretty long way to go. That has put quite a bit of strain on supply chains around the world,” he said, citing possible disruptions to manufacturing and freight from East Asia due to more lockdowns.
Catherine Mann, a rate-setter at the Bank of England, warned a day earlier that the Omicron variant could add to inflationary pressures, while Jerome Powell, Chair of the US Federal Reserve, said the central bank should consider easing large-scale bond purchases more quickly amid a strong economy and expectations that inflation will continue to rise into the middle of next year.
The OECD was established in 1961 to stimulate economic progress and world trade. The team encourages countries and organizations to work together to address policy challenges.
It projects global growth of 5.6% this year, 4.5% next year and 3.2% in 2023. This is little changed from its previous forecast of 5.7. % for this year, with the forecast for next year unchanged. The OECD has not previously released estimates for 2023.
Consumption is expected to be the main driver of UK growth, while business investment continues to be held back by uncertainty. The team forecasts GDP growth of 6.9% this year, before adjusting to 4.7% next year and 2.1% in 2023, all up from the September forecast.
Investors no longer seem worried about Omicron’s impact on the economic recovery. The FTSE 100 index of Britain’s largest listed companies closed up 109.23 points, or 1.6%, to 7,168.68. The more domestic-focused FTSE 250 rose 393.01 points, or 1.8%, to 22,912.73.
