UK set to become the world’s fifth-largest economy – overtaking Japan

New research from the Centre for Economics and Business Research has shown that lower growth in France and Germany is predicted to work in Britain’s favour, helping it overtake Japan and secure fifth place globally over the next 15 years.

Under their projections, the UK would sit behind only the United States, China, India and Germany by 2040.

However, the report also notes that the balance of economic power is continuing to shift eastwards, with Asian economies expected to account for an increasing share of global growth in the years ahead.

The United States is expected to remain the world’s largest economy, with output rising to around $53trillion by 2040, although China is forecast to close much of the gap, reaching close to $48trillion.

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When measured using purchasing power parity, which accounts for differences in prices and currencies, China has already overtaken the US earlier this decade.

India is projected to climb into third place globally by 2040, having risen from ninth position at the start of the 2010s. Germany is expected to retain fourth place despite experiencing a shallow recession over the past two years, while Japan is forecast to slip down to sixth.

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However, the headline growth masks a less encouraging trend for households.

Britain’s ranking for GDP per head, a widely used indicator of living standards, is predicted to fall from 19th this year to 21st by 2040, suggesting that average incomes may not keep pace with the country’s overall economic expansion.

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Average income per person will rise from roughly $57,000 to $89,000 over the period, but several nations will outpace Britain’s progress.

Luxembourg, Ireland, Switzerland, Singapore and the United States currently lead the world on this measure and are forecast to remain comfortably ahead.

The widening gap points to ongoing difficulties with productivity, wage growth and the state of public finances.

Nina Skero, the CEBR’s chief executive, characterised the shifting landscape as a “gradual rebalancing” of global economic influence, with power moving away from debt-laden western nations towards faster-expanding economies in Asia and the southern hemisphere.

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Indonesia, home to the world’s fourth-largest population, could break into the top ten economies by the early 2030s as investment expands.

The think tank cautioned that worldwide growth would slow to approximately 2.5 per cent next year amid the highest American tariff rates in a century.

“Elevated uncertainty stemming from shifts in the global trade order due to US tariff increases have weighed on activity,” the forecast warned.