The Organization for Economic Cooperation and Development (OECD) stated in its latest World Economic Outlook that the UK economy is expected to grow by 1.1% this year, an increase of 0.7 percentage points from its latest forecast in May. The institution also predicts that the UK may face inflation issues.

The new forecast shows that the UK inflation rate will reach 2.7% in 2024 and drop to 2.4% in 2025. The forecast for 2025 will concern the Bank of England and may have to adopt a new explanation for why interest rates are being cut in a pro cyclical environment.

On September 25th, Bank of England policy member Megan Greene stated that interest rate policy is not as strict as she and her colleagues had imagined. She supports the gradual lifting of policy restrictions.

The OECD points out that by July 2024, the prices of over half of the goods in the UK inflation basket will still be growing at an annual rate of over 3%.

The OECD stated that the risk of rising inflation in the UK may come from the sustained increase in labor costs. The New Labour government has pledged to further increase workers' wages on top of the 10% minimum wage increase approved by the outgoing Conservative Party.

In contrast, the OECD's forecast shows that the Federal Reserve has room to lower interest rates, and it is expected that the US inflation rate will reach 2.4% in 2024 and 1.8% next year.

Germany's inflation rates are expected to be 2.4% and 2.0% respectively, while France's inflation rates are expected to be 2.4% and 1.9% respectively. Canada's inflation rates are expected to be 2.5% and 2.2%, while Japan is expected to reach 2.5% and 2.1%, confirming that Japan has emerged from the deflationary quagmire.

Based on the above news, if the UK delays interest rate cuts due to rising inflation and the Federal Reserve implements interest rate cuts due to lower inflation, the GBP/USD is expected to be boosted in the future.

Daily chart of GBP/USD