UK growth for next year slashed to 1.7 per cent by OECD

By DAILY MAIL REPORTER
Updated: 11:59 EST, 18 November 2010

The Organisation for Economic Co-Operation and Development (OECD) has cut its UK growth forecast for next year due to the Government’s ‘substantial but necessary’ measures to reduce deficit.

The international think-tank slashed its forecast from 2.5 per cent to 1.7 per cent, saying the cost-cutting plans would increase ‘headwinds’ facing the economy in the short-term.

It also cautioned that declining house prices and the Government’s austerity package could hit household spending.

Forecast: The OECD predicted that inflation will remain above target next year

The Paris-based group said: ‘The substantial but necessary fiscal tightening and weak real income growth create headwinds and growth is projected to remain subdued in 2011.

‘The recovery will gain a bit more momentum in 2012 when exports are expected to increase further and business investment to grow more robustly.’

The OECD raised its prediction for this year following recent surprisingly strong figures and is forecasting growth of 2 per cent in 2012.

Its expectations for next year are lower compared to both the 2.3 per cent projection put forward by the Office for Budget Responsibility as well as the Bank of England’s 2.5 per cent forecast in its recent quarterly report.

However, the international think-tank agreed with the Bank’s view that surging inflation will only be temporary, predicting that inflation will remain above target in 2011 before dropping below 2 per cent in 2012.