Britain to lag rest of G7 in its recovery
BRITAIN will be the last major economy to exit the global recession, the Organisation for Economic Cooperation and Development (OECD) said yesterday in its interim economic assessment, citing the UK’s poor fiscal position and reliance on what is a weakened banking sector.
While the latest OECD GDP forecasts for this year provide slightly improved outlooks for Japan and the Euro area and an unchanged projection for the US, they point to a gloomier situation in the UK. The OECD cut its 2009 growth forecast for the UK to a contraction of 4.7 per cent from minus 4.3 per cent. It believes the UK will be the only OECD country not to record one quarter of positive growth in 2009 and its economy will stagnate next year.
However, many UK economists expect Britain to experience growth in either the third or fourth quarter, as indicated by this week’s purchasing managers’ indices, despite serious concerns about the strength and sustainability of the recovery and the possibility that these surveys have been over optimistic in the past.
Opposition politicians leapt on the OECD’s gloomy outlook. Shadow chief secretary to the Treasury, Philip Hammond, said: “Far from being well-placed to weather the storm as Gordon Brown claimed, these figures show yet again that Britain is worse placed than our neighbours by a recession that we were ill-prepared to face thanks to his economic and fiscal mismanagement.”
The OECD also warned against further fiscal stimulus and stressed countries need to prepare to return to long-term fiscal sustainability. The OECD’s acting chief economist, Jorgen Elmeskov, said it was desirable to prepare credible exit strategies and fiscal consolidation plans now.
Citi’s Michael Saunders said: “The UK is surely in this category of countries. The UK has the highest fiscal deficit among OECD countries and has no credible medium-term plans to get back to fiscal sustainability.”