UK will escape 'double dip', predicts OECD

(Reuters)

Britain will experience a slowdown in her economic recovery but escape a "double dip" relapse into recession, says the Organisation for Economic Co-operation and Development (OECD) – the "club" of all the world's advanced economies.

But while the US, Japan and Germany are set for expansion after their severe slumps, China and Brazil, hitherto two of the emerging markets' most boisterous powerhouses, are showing signs of a decline in growth.

The OECD's assessment of key "leading indicators", such as surveys of consumer confidence and business sentiment, reveals the UK will experience a "moderate downturn" and a flattening out of growth over the next year or so.

So far this year UK economic growth has confounded the critics by coming in at about double expectations. At 1.7per cent over the first three quarters, growth has already exceeded the latest consensus growth forecast among independent economists as well as the Office for Budget Responsibility's projections. The OECD sees that slowing down markedly next year, though staying in positive territory and avoiding outright recession. The Bank of England presents its latest definitive view of the economy in its quarterly Inflation Report tomorrow.

The OECD's leading indicator for the UK fell for the sixth successive month in September, from a peak of 103.8 in March to 103.0 in June, 102.7 in July, 102.6 in August and an 11-month low of 102.4 in September. A reading above 100 points to expansion but a reading above 100 and declining points to a downturn. The UK leading indicator has been above 100 since September last year.

More worrying for the world, though, is the reading for key emerging markets China and Brazil, pushing below the long-term trend and, says the OECD, "implying that the level of industrial production will fall below its longer-term trend in these two economies", though that trend is a very robust one.

Among the other large economies, the OECD says there are signs of "continuing expansion" in Russia and of moderate downturns in Canada, France, India and Italy. In the distressed eurozone periphery, Ireland is due for a sharp recovery, Spain for stagnation and Greece for more contraction.

Howard Archer, the chief economist at forecaster Global Insight, said: "Economic activity still seems set to be seriously pressurised over the coming months by major fiscal tightening, notably including VAT rising in January.

"Given this backdrop, we do not expect the Bank to raise interest rates before the fourth quarter of 2011."