Britain is on the brink of recession amid warnings that several economic headwinds including inflation and a shortage of staff will derail the recovery from the COVID pandemic and grind the economy to a halt.
Paris-based Organisation for Economic Co-operation and Development (OECD) said recent rises in income and business taxes will prove "contractionary" and contribute to a slowdown.
This will see GDP stagnate in 2023 due to "depressed demand" amid the global supply bottlenecks and energy market turmoil.
It forecast the UK economy will expand 3.6% this year, the second-fastest rate among the G7 advanced nations behind Canada, before sinking to zero — the weakest economic growth in the developed world.
The OECD predicts inflation will peak at more than 10% at the end this year, and still stand at 7.4% at the end of 2023 amid the tightest squeeze on household budgets since the 1970s.
Britain's inflation rate is currently running at five times the Bank of England's 2% target after CPI inflation hit a 40-year high of 9% in April.
According to the organisation, households will take on debt to "to keep up with the rising cost of living," while businesses will cut investment in the face of higher borrowing costs.
The club of rich nations said: "In most OECD economies, real household disposable income was already declining on a year-on-year basis in the last quarter of 2021, despite strong employment growth, and in many that decline is estimated to have continued in the first quarter of 2022."
It also warned Threadneedle Street will need to raise interest rates to 2.5% from 1% to tackle faster price growth, adding higher than expected goods and energy prices could reduce real incomes even further.
"A prolonged period of acute supply and labour shortages could force firms into a more permanent reduction in their operating capacity or push up wage inflation further," the OECD said.
Read more: Inflation hits UK service industry
In its bi-annual economic outlook released on Wednesday it cited "considerable" risks to its outlook.
"Spillovers from economic sanctions and higher than expected energy prices as the Ukraine war drags on, and a deterioration in the public health situation due to new COVID strains are significant downside risks," the OECD said.
As part of a global slowdown, worldwide GDP is forecast to rise by 3% this year, compared to a forecast of 4.5% before Russia's invasion of Ukraine, and expected to grow by just over 1% in 2023.
The eurozone economy is expected to slow to 2.6% this year and 1.6% next year, with the risk of a recession if all Russian gas imports are cut off either by EU sanctions or the Kremlin.
A full end to Russian supply would knock another 1.25 percentage points from eurozone growth, which "could potentially leave many countries close to, or in, recession in 2023," according to the OECD.