Osborne defiant as think-tank predicts slowdown

The Organisation for Economic Co-Operation and Development (OECD) forecast annualised growth of just 0.3 per cent for the UK in the final quarter of 2011, in a report which painted a gloomy picture of prospects for most of the world’s biggest economies.

If it turns out to be correct, the OECD’s forecast would complete a steep decline in annualised growth from 2.5 per cent in the third quarter of 2010 to 0.7 per cent in the second quarter of 2011, 0.4 per cent between July and September and 0.3 per cent in the last three months of this year.

In a mark of continuing concern over the sluggish recovery, the Bank of England’s Monetary Policy Committee again held interest rates at a record low of 0.5 per cent today, though the bank held off from printing more money to stimulate the economy through “quantitative easing”.

Labour Shadow Chancellor Ed Balls called on Mr Osborne to ease up on austerity measures in the hope of bolstering fragile demand and said the Chancellor should use this weekend’s meeting of G7 finance ministers in France to seek agreement on a global plan for growth.

But Mr Osborne said that the argument that slower-than-expected growth was caused by the Government’s deficit reduction programme was “for the birds”.

Instead, he said that countries throughout the world were being affected by factors beyond Britain’s control, such as high oil prices, the sovereign debt crisis in the eurozone and concerns about growth in the US.

“The forecasts we got from the OECD today show that this is a problem for many advanced economies. There was a revision down in their forecast for growth for virtually every developed economy,” said the Chancellor.

“We can look at the various short-term problems... but actually the real issue here is the long-term one, which is the big overhang of public and private debt from a decade-long boom that went unchecked.

“Unfortunately, the recovery from this is slower and takes longer than recoveries from previous recessions.

“I think Britain has put in place the right policy mix.”

The OECD interim economic assessment is designed to check if projections made in its last economic forecast are on track. In May, the body downgraded its estimate for UK GDP growth in 2011 to 1.4 per cent and 1.5 per cent for 2012.

While OECD chief economist Pier Carlo Padoan encouraged governments to continue with fiscal tightening, he encouraged them to ease up when possible.

Mr Padoan admitted world economic growth was turning out to be much slower than the think-tank thought it would be three months ago.