The Organization for Economic Coordination and Development has lowered its forecast for growth in the U.K. as the austerity measures threaten to weaken the country’s uneven economic recovery, according to The Daily Telegraph. On Thursday, the OECD revised its November projection for U.K. growth down from a 1.7% increase in gross domestic product to a 1.5% expansion, and urged the Bank of England to keep loose monetary policy to support growth. The group warned that weak domestic consumption, the fragile housing market, and uncertain global demand were the primary risks to the economy.
The OECD praised the government for “ambitious” austerity measures, but warned that the impact of the public spending cuts on household income and spending would slow the recovery. The group said, “The planned fiscal consolidation is needed to ensure that the fiscal position will be sustainable over time,” but added, “Nonetheless, it adds to the headwinds from weak real income growth, and a fading rebound in global trade.” The OECD also raised its forecast for inflation in 2011 to 3.3% from 2.6% previously, although advised, “Policy rates should rise only slowly from mid-2011 onwards as long as inflation expectations do not drift too far from the target.” Bloomberg adds that separate report on Thursday from the BOE showed inflation expectations reached 4% in February, which is the highest since August 2008 and could prompt a quicker reaction from the central bank.
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