Britain is heading for the fastest economic growth in the G7, according to a leading economic think tank, as it urged the Bank of England to raise interest rates to tackle surging inflation.

The UK economy will expand by 6.9pc this year, the Organisation for Economic Co-operation and Development (OECD) said, up from September’s forecast of 6.7pc growth. It makes the UK the fastest-growing economy in the G7 as it bounces back from the pandemic.

Despite a downgrade by the club of rich nations to its projection next year from 5.2pc to 4.7pc, the UK will still lead the G7 pack.

However, the OECD called on the Bank of England to act against “clear signs of persistent price pressures” by raising interest rates, warning the UK will suffer a setback if supply chain disruption worsens.

The OECD said: “Labour shortages are emerging in sectors particularly affected by the pandemic and in which EU-born migrants were also over-represented, such as accommodation and food services.”

It added that the omicron variant “could be a threat to the [global] recovery” and risked worsening supply chain chaos and causing inflation to spiral. The OECD expects UK inflation to peak at 4.9pc by mid-2022, down from 5.2pc previously.

The OECD said the UK’s vaccine booster rollout meant it was more resilient in the face of new uncertainties. Britain has been slower than the US or China to return to its pre-Covid GDP but should get to that point soon, according to the organisation.

China’s growth forecasts were downgraded significantly by the OECD on Wednesday, which predicted growth of 8.1pc this year, down from the previous 8.5pc forecast, as its zero-tolerance stance on Covid outbreaks risks becoming counter-productive. The country’s economy is now expected to grow 5.1pc in 2022, down from 5.8pc, the OECD said.

It added: “With the preponderance of virus variants that are more contagious and more difficult to trace, and the disruption of supply chains due to restrictions, the zero tolerance policy is increasingly questioned.

“Given the rapid spread of new variants and the high share of asymptomatic carriers (partly owing to vaccination), border controls are unlikely to be an effective way to remain Covid-free in the longer run.”

A sharper slump in China could threaten other nations’ growth, chief economist Laurence Boone said, with the country having accounted for one-third of global growth before Covid.

Ms Boone said: “A further slowdown in China, additional to our projections, where demand growth would be reduced 2 percentage points per annum, could reduce global GDP growth by up to 1 percentage point in 2022 and 2023.

“Trade with China would slow, new disruption to supply chains could appear, and financial markets would very likely be particularly shaken by such a shock.”

The think tank also cut growth forecasts for the US from 6pc to 5.6pc for this year and from 3.9pc to 3.7pc for 2022.

America’s relatively low vaccination rate combined with a surge in Covid cases and supply disruptions to hold back growth in the third quarter, the OECD said, although there had been signs of an acceleration since then.

The OECD also trimmed its outlook for the eurozone, predicting growth of 5.3pc this year and 4.3pc in 2022.

Overall the global economy “has lost momentum”, the OECD said, with growth of 5.6pc this year and 4.5pc next year.