OECD praises UK economic policies

The Government's economic policies have delivered the best growth and inflation prospects for 30 years, according to a glowing end-of-year report from the Organisation for Economic Co-operation and Development (OECD).

The one criticism the agency makes is that progress in reducing the Government's budget deficit has been too slow. It predicts that the UK will not qualify for the single currency because the borrowing requirement will exceed the 3 per cent Maastricht ceiling.

In its twice-yearly economic outlook, published later this week, the OECD says strong growth, falling unemployment and low inflation "are the most tangible signs of the positive benefits of past and ongoing microeconomic reforms and a stable macroeconomic policy framework". It is the latest in a stream of publications from the Paris-based organisation, funded by member governments, to lavish praise on Government policies.

Val Koromzay, the organisation's deputy director for economic forecasts, said: "I'm not sure if one wants to be euphoric, but the OECD assessment is that there really are grounds to be solidly optimistic about the near- term prospects for the UK economy."

The Government was delighted by the support for its claims that its policies have helped push Britain up the growth league. Kenneth Clarke, the Chancellor, said: "This independent report from a highly respected international body supports my view that the UK economy is facing the best economic circumstances for a generation."

Indeed, the OECD's vigorously free-market economists say another dose of deregulation and flexibility would bring substantial benefits, even though the UK has already gone much further than continental Europe and Japan.

The new forecasts put Britain in the top half of the league of big industrial countries for growth, with only the Canadian economy expanding faster during the next two years. Its prediction of 3.3 per cent growth next year is below the 3.5 per cent Treasury forecast in the Budget but around the average for independent economists. Consumer spending and private sector investment are expected to drive the above-trend growth.

The OECD foresees unemployment falling below 7 per cent of the workforce by the second half of 1998, the third lowest among the big economies after Japan and the US. The report suggests that falling unemployment could reduce overall inequality even if the distribution of wages widens, providing the Government with some useful ammunition against the charge that income inequality has grown faster in the UK than in any other industrial country.

It reckons interest rates will have to rise, although by a mere quarter point by 1998. But the organisation says inflation will remain below the Government's target, making it much more optimistic than many other economists. Unlike many other forecasters, including the Bank of England, the OECD thinks inflationary pressures have diminished since 1995.

The report says: "Inflation is projected to be below 2.5 per cent in the coming two years, aided in part by a significant rise in sterling's effective exchange rate and some firming of interest rates." It concedes there is some risk of inflationary pressure, but says there are no convincing signs yet that inflation is rising.

This optimistic outlook still puts UK inflation above the average for the G7 countries, at 2.2 per cent in 1997 and 1.9 per cent in 1998, compared with average rates of 1.7 per cent and 1.6 per cent respectively. But it concludes: "Prospects for achieving sustained output growth and low inflation are the best in 30 years, even though fiscal consolidation has been relatively slow."

The outlook for government borrowing is the one area where the think- tank is substantially more pessimistic than the Treasury: "Significant further progress in delivering the planned reduction in public sector borrowing will be needed."

In a forecast made before the Budget, it puts the ratio of government borrowing to GDP at 3.7 per cent in 1997 - the same as Italy - the key year for the decision as to which countries qualify to join the euro. Even the measures announced last month would be unlikely to get this below the 3 per cent ceiling.

Comment, page 15

PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Money
Welcome to tinsel town: retailers such as Selfridges will be Santa's little helpers this Christmas, working hard to persuade shoppers to stock up on gifts
news
News
i100
News
people
Arts and Entertainment
Architect Frank Gehry is regarded by many as the most important architect of the modern era
arts + entsGehry has declared that 98 per cent of modern architecture is "s**t"
Arts and Entertainment
Soul singer Sam Smith cleared up at the Mobo awards this week
arts + entsSam Smith’s Mobo triumph is just the latest example of a trend
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

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Data Analyst/Planning and Performance – Surrey – Up to £35k

£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Wilko Johnson, now the bad news: musician splits with manager after police investigate assault claims

Wilko Johnson, now the bad news

Former Dr Feelgood splits with manager after police investigate assault claims
Mark Udall: The Democrat Senator with a fight on his hands ahead of the US midterm elections

Mark Udall: The Democrat Senator with a fight on his hands

The Senator for Colorado is for gay rights, for abortion rights – and in the Republicans’ sights as they threaten to take control of the Senate next month
New discoveries show more contact between far-flung prehistoric humans than had been thought

New discoveries show more contact between far-flung prehistoric humans than had been thought

Evidence found of contact between Easter Islanders and South America
Cerys Matthews reveals how her uncle taped 150 interviews for a biography of Dylan Thomas

Cerys Matthews on Dylan Thomas

The singer reveals how her uncle taped 150 interviews for a biography of the famous Welsh poet
DIY is not fun and we've finally realised this as a nation

Homebase closures: 'DIY is not fun'

Homebase has announced the closure of one in four of its stores. Nick Harding, who never did know his awl from his elbow, is glad to see the back of DIY
The Battle of the Five Armies: Air New Zealand releases new Hobbit-inspired in-flight video

Air New Zealand's wizard in-flight video

The airline has released a new Hobbit-inspired clip dubbed "The most epic safety video ever made"
Pumpkin spice is the flavour of the month - but can you stomach the sweetness?

Pumpkin spice is the flavour of the month

The combination of cinnamon, clove, nutmeg (and no actual pumpkin), now flavours everything from lattes to cream cheese in the US
11 best sonic skincare brushes

11 best sonic skincare brushes

Forget the flannel - take skincare to the next level by using your favourite cleanser with a sonic facial brush
Paul Scholes column: I'm not worried about Manchester United's defence - Chelsea test can be the making of Phil Jones and Marcos Rojo

Paul Scholes column

I'm not worried about Manchester United's defence - Chelsea test can be the making of Jones and Rojo
Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

Frank Warren: Boxing has its problems but in all my time I've never seen a crooked fight

While other sports are stalked by corruption, we are an easy target for the critics
Jamie Roberts exclusive interview: 'I'm a man of my word – I'll stay in Paris'

Jamie Roberts: 'I'm a man of my word – I'll stay in Paris'

Wales centre says he’s not coming home but is looking to establish himself at Racing Métro
How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker