OECD: UK economy set for faster growth

The UK economy is forecast to grow at a faster pace than most of the world's seven major developed countries in the first half of the year as its recovery picks up pace, according to a report out today.

In its outlook for key economies, the Organisation for Economic Cooperation and Development (OECD) said recent evidence suggested "a continued recovery of the world economy", although some countries would achieve a quicker turnaround than others.

In its forecasts for G7 nations in the first half of 2010, the OECD estimates annualised growth of 2% for the UK in the first three months of this year, compared with 1.8% in the fourth quarter last year and a contraction of 1.1% in the third quarter. This is not as fast as Canada, the US and France, but beats the predicted quarterly expansion in Germany, Japan and Italy.

In the second quarter of the year, the UK's expected annual growth of 3.1% is only exceeded by the Canadian economy.

The report could give a boost to Gordon Brown a day after the Prime Minister called the General Election.

In the larger OECD area, the organisation said many nations had benefited from trade links to emerging market economies like China, India and Brazil.

The OECD said while most economies had seen an upturn towards the end of last year, with the exception of the euro area, growth is expected to be slower in the first half of 2010.

"Despite some encouraging signs on activity, the fragility of the recovery, a frail labour market and possible headwinds coming from financial markets underscore the need for caution in the removal of policy support," the report said.

Many countries have slashed interest rates in their attempts to soothe ailing economies.

The OECD said returning the cost of borrowing to normal levels should be carried out at a pace "contingent on the strength of the recovery" in individual countries and the outlook for inflation.

It added that signals for the future of inflation in both the UK and US were "mixed".

The OECD also appeared to lend weight to a gentle approach to dealing with government debts.

"As for fiscal policy, the sharp increase in government indebtedness in the OECD area during the downturn calls for ambitious, clearly communicated medium-term consolidation programmes in many countries," it said.

"Consolidation should start in 2011, or earlier where needed, and progress gradually so as not to undermine the incipient recovery."