OECD scolds Britain over budget deficit

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The latest OECD survey of the British economy warned yesterday that the budget deficit is "still substantial and significantly larger than in most other OECD countries. There is a need to further reduce the government deficit, which will require much slower growth in government expenditure and more effort devoted to ensuring that publicly funded services provide good value for money."

The remarks come before next month's pre-Budget report and comprehensive spending review, which the OECD believes will promise a slowdown in public expenditure. The OECD contrasts the "deliberate" choice to spend more on the NHS with other member states' tendency towards spending restraint.

How difficult the post-credit-crunch economic outlook will be was indicated yesterday by the CBI index of UK retail sales, which slipped to a 10-month low in September. Some 37 per cent of companies said sales were up, while 25 percent said volumes fell. "Some retailers are faring worse than others," said John Longworth, chairman of the CBI's Distributive Trades Panel and executive director at Asda. "The Bank needs to keep a watchful eye on future confidence, which risks being dented further as a result of increased uncertainty about the economic outlook into 2008."

More widely, Britain's service sector maintained steady growth in July despite a sharp fall in the output of hotels and restaurants after the unseasonal weather and the introduction of a smoking ban in pubs and clubs in England.

The Office for National Statistics reports that service sector output rose 0.3 per cent in July. That was the same monthly pace as in June and shows the economy got off to a reasonable start in the third quarter. It is in line with Wednesday's upbeat figures on economic growth. However, output from hotels and restaurants fell 2.2 percent in July – the biggest monthly fall since November 2003.