OECD forecasts double-dip recession

David Cameron, UK Prime MinisterThe UK's economy will slip back into recession in the coming months, a bleak forecast from the OECD has revealed.

The economic think-tank said the UK's GDP will shrink in the final quarter of 2011 and the first quarter of 2012 - the first time it has predicted a double-dip recession for the UK.
It believes the UK's faltering economy will grow by just 0.5% in 2012, down from its previous estimate of 1.8% in May, as it is hit by weak demand for exports, the Government's austerity measures and the squeeze in consumer spending.

The OECD also said unemployment, which currently stands at 8.3% - its highest since 1996 - will rise to 9% in 2013 as jobs figures take a worse hit than in the recession following the banking crisis.

It said more economy-boosting quantitative easing measures from the Bank of England are "warranted", adding that it expects the stock of asset purchases to rise to £400 billion early next year from £275 billion currently.

The OECD's forecast comes ahead of Chancellor George Osborne's Autumn Statement on Tuesday in which he is set to announce a series of measures including credit easing to boost prospects.

The OECD said the slump will be modest compared with previous recessions and the economy is set to start recovering after two quarters of decline. It expects GDP growth of 1.8% in 2013.

But it also warned that there are downside risks to its forecasts and the downturn could turn out to be deeper than projected, as the eurozone debt crisis has the potential to hit the banking sector and weaken confidence.

It warned that it may become necessary to pump more money into banks to help shore up the financial system. While it would be "preferable" for banks to raise the money from private investors, it warned that the Government needs to be prepared to step in.

The Chancellor may also have to consider easing his programme of spending cuts but it warned that he will still have to increase austerity measures later on to ensure medium-term targets are met. It suggested the Government could further increase the retirement age to improve long-term prospects.
© 2011 Press Association
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