COALITION HIT BY GDP DOWNGRADE
THE GLOBAL economic slowdown is set to condemn the UK to near-stagnation in the second half of the year, the Organisation for Economic Co-operation and Development (OECD) warned yesterday.
Forecasters at the OECD predict British growth of 0.1 per cent or below in this quarter, and in the next.
The downward revisions are largely due to weaker prospects for exports, the group said. It also slashed forecasts for the G7 as a whole, excluding Japan, to sub-0.1 per cent growth.
The news dealt a severe blow to chancellor George Osborne’s deficit reduction plan, which relies on growth continuing to boost the government’s tax receipts.
Yet the OECD’s chief economist, Pier Carlo Padoan, urged the chancellor to stick to the schedule for austerity.
“The government should not change its course,” Padoan said. “This is a very precise recommendation.”
Nonetheless, the severity of the UK’s weak outlook was affirmed by Danske Bank analysts, who yesterday said that the government should be deprived of its gold-plated credit rating and be given the same rating that Italy currently holds.
“The UK should be given an A+ rating, i.e. four notches below the current [triple-A] rating,” it said.
The coalition managed to claw government finances back into the black in July, thanks to spiking corporation tax receipts and a new bank levy.
Yet public sector net borrowing excluding financial interventions has still stretched above £40bn in the first four months of this fiscal year, while the total government debt has climbed to £940.1bn, equivalent to 61.4 per cent of the country’s GDP.
Central government spending hit £207.3bn from April to July, up from £200.7bn at the same time last year.
The Office for Budget Responsibility (OBR) forecasts that public borrowing excluding financial sector interventions will total £122bn during 2011-12, more than £20bn lower than in the previous year.
However, the economy has barely grown since last September and many economists doubt the government will meet its deficit target. When the coalition launched its emergency budget in June 2010, the OBR predicted growth of around 3.6 per cent in the 18 months to the end of 2011.
But if the OECD’s forecasts are realised, the UK economy will have expanded by less than one per cent in that period.
Elsewhere, German politicians were rocked by the OECD report, which predicted contraction of 0.3 per cent for the country’s fourth quarter.