OECD revises up UK growth forecast for 2016

21 Sep 16

The OECD has slightly revised up its growth forecast for the UK in 2016 despite what it said was the “extremely high” uncertainty of the impact of the vote to leave the European Union.

In its interim Economic Outlook, the Paris-based think-tank said that a strong response from the Bank of England has helped stabilise markets following the vote to leave the economic bloc on 23 June.

It has forecast that the UK economy will grow by 1.8% this year, 0.1 percentage points above its last pre-Brexit forecast on 1 June.

However, the projection for 2017 has been cut in half, with growth expected to be 1%.

Growth would be “well below the pace in recent years” in both 2016 and 2017, the review stated. The economy grew by 2.2% in 2015.

The think-tank downgraded its global growth estimate slightly from its June forecast, from 3% to 2.9% and warned that the world economy is set to remain in a “low growth trap”.

Catherine Mann, the OECD’s chief economist, said the picture for global growth was not pretty, and that a 2.9% growth rate across the board would likely lead to more broken promises for citizens.

In a recent interview with PF, Mann explained that economic theorists around the world have long known that globalisation created winners and losers. She lamented that bodies like the OECD had relied on domestic policymakers to countervail this – “we can’t be like that anymore,” she said.

In the outlook report, the OECD also called for governments to use the extra fiscal space created by low interest rates to invest in human capital and physical infrastructure to promote short-term demand, long-term output and inclusiveness.

Mann stressed that the sharp slowdown in global trade reflects the difficulty in exiting the low-growth trap, and called on countries to reduce their over-reliance on central banks to ensure opportunity and prosperity for future generations.

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