By Nick Mann | 29 November 2011
The UK economy is on course to enter a ‘double-dip’ recession in six months time, the Organisation for Economic Co-operation and Development warned yesterday.
In its latest Economic outlook, published just hours before Chancellor George Osborne delivers his Autumn Statement, the think-tank said that the UK’s economy would shrink by 0.03% in the final quarter of 2011 and by 0.15% in the first three months of 2012.
It also forecast a continued increase in UK unemployment – from 8.1% this year to 8.8% in 2012, reaching 9.1% in 2013.
The OECD explained that a combination of weak international demand, continued low levels of household spending and the government’s efforts to cut the deficit had ‘halted the recovery’ in the UK.
The eurozone economy would also enter ‘mild recession’, it added, and will grow by only 0.2% in 2012. The OECD labelled the eurozone crisis the ‘key risk’ to the global economy and called for ‘decisive action’ to ensure it did not spread.
But it was more positive about the UK’s long-term growth prospects, with the 0.5% increase in gross domestic product forecast for 2012 as a whole expected to be followed by 1.8% growth in 2013. The OECD explained this would come as a result of a recovery in exports and household consumption.
It praised the government’s ‘ambitious fiscal consolidation’, which, it said, had ‘bolstered credibility and helped maintain low bond yields’. This would help to ‘cushion the slowdown’, it added.
Commenting on the forecasts, Osborne told Sky News: ‘What is clear from the OECD is that these are very difficult times for many countries in the Western world.
‘The OECD is predicting deep recessions in many European countries. That is a challenge for Britain.
‘What we can do with our policies is take Britain safely through this storm. But we have got to lay the foundations for future economic success.’
Shadow chancellor Ed Balls claimed the forecasts were further proof that the government should slow down its deficit reduction programme.
‘The OECD remains diplomatic in its language, but both the OECD and the International Monetary Fund were clear this summer that if the economy continues to underperform with slow growth, then the pace of spending cuts and tax rises should be slowed down to support the economy,’ he said.
‘Families and businesses in Britain can’t afford to wait for things to get worse before the government realises its plan to cut spending and raise taxes too far and too fast isn’t working. We need action and a change of course now to boost jobs and growth and get the deficit down in a balanced way.’
