OECD highlights threats to UK as it slashes growth forecast

Renewed weakness in the housing market and the deficit reduction programme is threatening to weaken Britain's economic recovery, the Organisation for Economic Cooperation and Development has warned.

The OECD, the "club" of the world's advanced economies, has radically reduced its growth forecast for the UK for next year from 2.5 per cent to 1.7 per cent, reflecting what it calls "increasing headwinds" from the Government's deficit reduction programme, which it still endorses.

The OECD is also calling on the Bank of England not to raise interest rates until next summer at the earliest, and for the Chancellor to be prepared to act if needs be. "Even if the economy showed signs of turning out weaker than projected, planned structural fiscal adjustments should continue, though some temporary support could be provided in the event of a significant slowdown," it said.

As such, the OECD's forecast is now markedly lower than that of 2.3 per cent produced by the Office for Budget Responsibility at the time of the Budget, and the Bank of England's broadly similar estimate. The OECD sees the UK expanding by just 2 per cent in 2012, against 2.8 per cent for the OBR.

A rise in VAT to 20 per cent in January will trim 0.3 per cent from growth, the OBR confirmed yesterday. New forecasts from the OBR are due on 29 November.

Meanwhile, the latest figures on mortgage lending would appear to confirm the OECD's worst fears. The Council for Mortgage Lenders reported the lowest October figures since 2000. Just £12.4bn was advanced in October, down 9 per cent on October 2009.

The Bank of England added, in its Trends in Lending Report, that the problem was shifting from lenders to buyers: "Demand for secured credit for house purchase was reported to have fallen unexpectedly in the third quarter and the major UK lenders expected demand for secured lending to remain subdued."

The uncertainties surrounding economic prospects are pushing forecasters into ever more divergent views of the future. The OECD say that the "robust" growth seen so far this year was helped by rebuilding of stocks run down during the recession, but this is set to fade. Instead, the UK's recovery will be underpinned by domestic spending and exports. The latter in particular, however, may be badly affected by new sovereign debt crises in the euro area, Britain's largest export market.

The OECD's latest Economic Outlook states: "The economy is recovering from the recession, supported by both growing domestic demand and rising exports. 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 robustly."

The housing market is identified as a weak point: "Renewed decline in house prices in the UK would have a negative effect on household balance sheets , and have become a more acute risk in the UK.

"Several recent signs point to renewed weaknesses in the housing market. UK residential property is perhaps 40 per cent overvalued on historic norms, the OECD suggests, though no immediate correction is foreseen.

Better news emerged from the "real economy", however. UK car production, 75 per cent of which is exported, is up 6 per cent compared with the same period last year. The CBI's industrial trends survey reported better-than-expected demand in November, with home and export order books improving. Ian McCafferty, the CBI chief economic adviser, commented: "Factory output is still set to rise, albeit with modest expectations for growth, compared with recent months. Inflationary pressures are a concern."

Start your day with The Independent, sign up for daily news emails
Sport
sportWWE latest including Sting vs Triple H, Brock Lesnar vs Roman Reigns and The Undertaker vs Bray Wyatt
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor