Stronger growth is not causing inflation - TUC analysis of OECD data

27th March 2025

International evidence clears the way for the Bank of England to cut rates faster in support of higher growth, says TUC

New analysis of OECD data - published today (TBC) by the TUC - finds that there is no international evidence of higher consumer spending and faster growth leading to inflation over the last three years.

The analysis looks at data on consumer spending, GDP growth and inflation for 36 OECD countries across the three years from Q3 2021 to Q3 2024.

This time span covers the period when the global trend for interest rate increases began in late 2021 up to the most recent available data.

Consumer spending growth and GDP growth alongside lower inflation

Of the 36 countries, 10 have had a combination of higher consumer spending growth and higher GDP growth than the UK, alongside lower inflation.

This includes Australia, Canada, Greece, South Korea, Portugal, New Zealand, Spain, and United States.

In seven of the 10 countries, interest rates were kept below the UK peak of 5.25% during the three-year period.

By contrast, only three countries with lower consumer spending growth and lower inflation managed to achieve stronger GDP growth than the UK (Denmark, Belgium, and Italy).

The dataset shows no overall pattern to suggest that consumer spending growth has produced inflationary pressures in the current global economic context. If anything, it shows a tendency in the opposite direction, with inflation lower where consumer spending growth has been higher.

Scope for action to drive growth

The TUC says that this evidence from OECD nations should encourage the Bank of England to consider going further and faster with interest rates.

The UK has been slower than many nations to bring rates down from its recent peak. And the union body cautions that we are in danger of lagging behind other nations in using monetary policy to support growth and ease financial pressures on families and businesses.

The TUC says that the government should also be encouraged by this evidence that public expenditure that supports consumer spending - such as public sector pay improvements – can play a valuable role in its mission for growth.

TUC Chief Economist Geoff Tily said:

"Families and businesses have both suffered through a period of high interest rates that followed the worst slump in living standards in 200 years. This has held back growth.

"Evidence from around the world shows that higher GDP growth can be achieved alongside low inflation. Strong consumer spending can mean order books filling up and business balance sheets improving without high price increases.

"Policy makers at the Bank of England should be reassured by this data that interest rate cuts will not feed into inflation – and could even help lower it."

OECD data explorer: https://data-explorer.oecd.org/