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| OECD cuts UK economic growth forecasts for 2014 | |
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| The west's leading economic thinktank has forecast that Britain's economy will grow at a slower pace than expected as spending cuts and a lack of consumer and business confidence restrict the recovery. | The west's leading economic thinktank has forecast that Britain's economy will grow at a slower pace than expected as spending cuts and a lack of consumer and business confidence restrict the recovery. |
| In its half-yearly forecast, the Paris-based Organisation for Economic Co-operation and Development (OECD) warned that a long and bumpy recovery in the eurozone would continue to hit exports while the government's deficit reduction programme and the paying down of consumer debt would act as a brake on growth. | In its half-yearly forecast, the Paris-based Organisation for Economic Co-operation and Development (OECD) warned that a long and bumpy recovery in the eurozone would continue to hit exports while the government's deficit reduction programme and the paying down of consumer debt would act as a brake on growth. |
| It said the economy would increase by a more restricted 1.5% in 2014, down from its previous forecast of a stronger 1.6% increase in output. | |
| "The muted global recovery, especially in Europe, and the necessary adjustment of still-impaired public and private sector balance sheets continue to weigh on growth," the thinktank said in its economic outlook. | "The muted global recovery, especially in Europe, and the necessary adjustment of still-impaired public and private sector balance sheets continue to weigh on growth," the thinktank said in its economic outlook. |
| The OECD, which has 34 rich country members, added that despite a resilient labour market, consumer spending was being held back by weak average real earnings, fragile confidence and a determination among many households to reduce their overall debts. | The OECD, which has 34 rich country members, added that despite a resilient labour market, consumer spending was being held back by weak average real earnings, fragile confidence and a determination among many households to reduce their overall debts. |
| Private investment, a key driver of long-term growth, was also restrained by weak demand and "high uncertainty", it said. | Private investment, a key driver of long-term growth, was also restrained by weak demand and "high uncertainty", it said. |
| But it backed George Osborne's plans for further spending cuts, saying: "With a high budget deficit and gross government debt rising to 90% of GDP in 2012, further fiscal consolidation is necessary to restore the sustainability of public finances." | But it backed George Osborne's plans for further spending cuts, saying: "With a high budget deficit and gross government debt rising to 90% of GDP in 2012, further fiscal consolidation is necessary to restore the sustainability of public finances." |
| Britain needed to make strides to increase investment, the OECD said, and especially to improve infrastructure spending and housebuilding to spur jobs growth. Without a housebuilding programme, values could overheat, sparking another asset price bubble, it warned. | Britain needed to make strides to increase investment, the OECD said, and especially to improve infrastructure spending and housebuilding to spur jobs growth. Without a housebuilding programme, values could overheat, sparking another asset price bubble, it warned. |
| The muted and slow recovery in Britain contrasted with the forecast for the US, which is expected to reach almost 3% growth next year. The OECD heaped praise on Washington's successful re-capitalisation of its banks, which allowed the banking system to get back on its feet and kickstart lending to households and businesses. | The muted and slow recovery in Britain contrasted with the forecast for the US, which is expected to reach almost 3% growth next year. The OECD heaped praise on Washington's successful re-capitalisation of its banks, which allowed the banking system to get back on its feet and kickstart lending to households and businesses. |
| Unemployment in the US is forecast to fall from its current 7.5% level and its budget deficit to decrease steadily while the UK unemployment rate is predicted to remain stuck on 8% and its deficit to fall only slowly. | Unemployment in the US is forecast to fall from its current 7.5% level and its budget deficit to decrease steadily while the UK unemployment rate is predicted to remain stuck on 8% and its deficit to fall only slowly. |
| Nevertheless, the picture for the UK is mildly better than six months ago, when, in the depths of the euro crisis, the OECD said unemployment would rise to 8.3% this year. | Nevertheless, the picture for the UK is mildly better than six months ago, when, in the depths of the euro crisis, the OECD said unemployment would rise to 8.3% this year. |
| The OECD's chief economist, Pier Carlo Padoan, who urged countries to co-operate to facilitate growth, said: "While still disappointing, the global economy is moving forward, and it is doing so at multiple speeds. These multiple speeds reflect different paths towards self-sustained growth, with each path carrying its own mix of risks." | The OECD's chief economist, Pier Carlo Padoan, who urged countries to co-operate to facilitate growth, said: "While still disappointing, the global economy is moving forward, and it is doing so at multiple speeds. These multiple speeds reflect different paths towards self-sustained growth, with each path carrying its own mix of risks." |
| He criticised moves by the US Congress to impose public spending cuts, known as the sequester, before the recovery is entrenched, which it said would limit the country's growth spurt, but praised the longer-term path of government policy. | He criticised moves by the US Congress to impose public spending cuts, known as the sequester, before the recovery is entrenched, which it said would limit the country's growth spurt, but praised the longer-term path of government policy. |
| "In the United States, the combination of a repaired financial system and a revival in confidence is driving growth. Private sector demand is stabilising as household deleveraging is far advanced, house prices are rebounding and wealth accumulation is supporting consumption. Employment is growing, adding to confidence." | "In the United States, the combination of a repaired financial system and a revival in confidence is driving growth. Private sector demand is stabilising as household deleveraging is far advanced, house prices are rebounding and wealth accumulation is supporting consumption. Employment is growing, adding to confidence." |
| Concerns that the euro will remain a danger for the world economy if policy decisions prolong the current recession are a feature of the OECD's report. | Concerns that the euro will remain a danger for the world economy if policy decisions prolong the current recession are a feature of the OECD's report. |
| "In the euro area, still-rising unemployment is the most pressing challenge for policy makers. Protracted weakness could evolve into stagnation with negative implications for the global economy. Such a perspective would resonate negatively with large persistent risks of adverse interactions between weakly capitalised banks, public debt financing requirements and exit risks," Padoan said. | "In the euro area, still-rising unemployment is the most pressing challenge for policy makers. Protracted weakness could evolve into stagnation with negative implications for the global economy. Such a perspective would resonate negatively with large persistent risks of adverse interactions between weakly capitalised banks, public debt financing requirements and exit risks," Padoan said. |
| Throughout the euro crisis the European Central Bank (ECB) has resisted following the unconventional monetary policies pursued by the Bank of England, the US Federal Reserve and more recently the Bank of Japan, preferring to act as an insurer of last resort to debt-ridden eurozone nations. But the OECD urged the ECB to cut interest rates further and take a more active role in supporting an increase in lending to businesses. | Throughout the euro crisis the European Central Bank (ECB) has resisted following the unconventional monetary policies pursued by the Bank of England, the US Federal Reserve and more recently the Bank of Japan, preferring to act as an insurer of last resort to debt-ridden eurozone nations. But the OECD urged the ECB to cut interest rates further and take a more active role in supporting an increase in lending to businesses. |
| Even without a change of heart at the ECB's Frankfurt offices, the eurozone will begin to exit its recession in the second half of the year, though several countries including Italy and Spain will still be contracting into 2014. | Even without a change of heart at the ECB's Frankfurt offices, the eurozone will begin to exit its recession in the second half of the year, though several countries including Italy and Spain will still be contracting into 2014. |
| Italy is forecast to grow in 2014, but by less than 1%. The OECD had little better news for France, which has seen its economy flatline for two years and its new socialist government focus more on reducing debt than creating jobs. The OECD welcomed this stance, recommending that Paris allow welfare benefits to support those who are thrown out of work as public sector cuts bite. | Italy is forecast to grow in 2014, but by less than 1%. The OECD had little better news for France, which has seen its economy flatline for two years and its new socialist government focus more on reducing debt than creating jobs. The OECD welcomed this stance, recommending that Paris allow welfare benefits to support those who are thrown out of work as public sector cuts bite. |
| The OECD as a whole is expected to grow by just 1.2% in 2013 and 2.3% in 2014, with unemployment falling from 8.1% to 8% over the two-year period. | The OECD as a whole is expected to grow by just 1.2% in 2013 and 2.3% in 2014, with unemployment falling from 8.1% to 8% over the two-year period. |