The UK’s economic recovery will remain ‘weak’ throughout the rest of 2011, but growth will improve in 2012, the Organisation for Economic Co-operation and Development has said.
In a report on the UK economy, the influential international analysts conclude that the government’s public spending cuts ‘strike the right balance and should continue’.
It predicts that economic growth in the UK will be 1.4% this year, rising to 1.8% in 2012.
The United Kingdom economic forecast summary also finds that unemployment is likely to increase in the short term, while inflation will not fall back to the government’s 2% consumer prices index target until late 2012 at the earliest. It is currently 4.4%.
Following the Bank of England’s decision to keep interest rates at the historically low 0.5% earlier this week, the OECD has also warned that the ‘normalisation’ of interest rates will need to start this year.
In its accompanying report on the world economy, the think-tank has concluded that economic recovery appears to have ‘come close to a halt’ in the major industrialised economies, with falling household and business confidence affecting both world trade and employment.
Chief economist Pier Carlo Padoan said: ‘Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth has gone up.’
Calling for countries to take ‘credible steps’ to curtail debt, the report also urges governments to maintain room for short-term fiscal stimuluses if needed.
In a speech at the Chatham House think-tank today on the challenges for the global economy, Chancellor George Osborne reiterated that he would ‘stick to the deficit reduction plan’.
He said: ‘It’s the rock of stability on which our recovery is built. Nothing would be more damaging for Britain at this fragile moment for the world’s economy than an increase in mortgage rates for families and an increase in the cost of borrowing for businesses.’
