OECD forecast adds to UK economic gloom
More gloom for the UK economy today from the Organisation for Economic Co-operation and Development (OECD), the Paris-based think tank that brings together the richest 30 free-market economies in the world. In a new analysis by Pier Carlo Padoan, its Chief Economist, the OECD argues that the UK’s economy will grow more slowly over the next quarter than that of any other G7 country apart from Japan.
UK gross domestic product (GDP) will grow by an annualised rate of one per cent in the second quarter of 2011, according to Padoan, down from the 1.3 per cent forecast in November and compared to forecasts of 3.4 per cent in the US, 2.8 per cent in France and 2.3 per cent in Germany.
Last month, the OECD’s economic assessment cut the UK’s growth forecast for 2011 to 1.5 per cent, down from 1.7 per cent, as the economy faces “significant headwinds”, such as spending cuts and rising commodity costs.
Which spending cuts are these? Why, they are the very cuts supported by the OECD. In its economic assessment, the OECD backed the UK’s deficit reduction plan, describing it as an “ambitious and necessary fiscal adjustment”, while not having too much to say about the social damage it would cause.
The OECD also believes the UK experienced faster than expected growth in the first quarter of 2011, bouncing back from the negative growth at the end of last year. We’ll see. It its economic assessment last month, the OECD didn’t even acknowledge that growth had gone negative, simply saying that the UK’s broad based recovery “slowed” in the second half of last year.
I would expect growth to be positive in the first quarter of 2011. The Institute for Fiscal Studies’ Green Budget put the risk of a double-dip at about one in five and I’ve no reason to doubt that. What’s probably more important, if less headline-grabbing, is that the UK recovery will be needlessly sluggish, because the spending cuts will take demand out of the economy. Growth will be slower, unemployment will be higher and, paradoxically, this will make it harder for the Government to achieve its cherished aim of paying off the deficit over the lifetime of this Parliament. Bad economics from the OECD. Bad economics from the Coalition Government.