OECD warns recovery will be slow in UK
THE ORGANISATION for Economic Cooperation and Development (OECD) yesterday called on the government to devise a more “ambitious” schedule to rebalance the budget and warned that the UK’s recovery will be slow.
In a report on the economy, the leading think tank warned that unemployment will rise to 10 per cent in the UK, and called for “more explicit” spending cuts and tax rises to balance the deficit it expects to hit 14 per cent of gross domestic product (GDP) by next year.
The OECD recently revised down its short-term outlook for the UK economy to a contraction of –4.3 per cent this year, worse than the government’s forecast of –3.5 per cent.
The OECD added that the financial crisis is likely to lead to a permanent drop in the size of the UK economy.
The warning comes days after the Governor of the Bank of England, Mervyn King, urged the Treasury to set tougher goals to address the “extraordinary” public deficit.
The body recommended that the length and severity of the recession makes it necessary for the UK to improve productivity and do more to retrain the unemployed.
Tougher measures to balance the budget include “explicit targeting of programmes for expenditure cuts and temporary revenue-raising measures” and a role for an independent fiscal authority to assess whether the government was sticking to its spending rules.
In yesterday’s report, it also said that the “continuing weakness” in the financial sector is holding back the UK economy.
The body supports the approach proposed by the Financial Services Authority chairman Lord Turner to strengthen capital and liquidity requirements and “macro-prudential” regulation.
The Treasury is expected to unveil its own proposals for revised financial regulation this week, but the OECD said that “there remains the risk of unhelpful conflict between the Bank and the FSA” which could result in some issues falling between the responsibilities of the organisations.
Business secretary Lord Mandelson said yesterday the government will not publish its future spending plans before the next General Election.