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UK recovery subdued for two years, says OECD

16 March 2011 Last updated at 14:01

The UK economic recovery will remain subdued for two years, with government spending cuts and slowing world trade weighing down growth, a report says.

The Organisation for Economic Co-operation and Development (OECD) estimated growth this year of 1.5%, rising to 2% in 2012.

The independent Office for Budget Responsibility's forecast is for 1.9% growth this year.

The OECD called the government's cuts "ambitious but necessary".

It said they were needed in order to achieve a sustainable recovery.

The wording is slightly different to a previous OECD report on the UK economy, when it called them "substantial but necessary".

The body, which is known to consult the governments of the countries it monitors, also suggested that interest rates should remain low.

The OECD warned that strong economic growth in the run-up to the 2008-09 recession had hidden a build-up of "significant imbalances", creating an over-reliance on the financial sector, booming asset prices and too much borrowing.

Spending cuts were needed to address these imbalances, it argued.


It also said that reforms to the housing market should be made, with the aim of lowering asset prices and increasing affordability.

Education, too, should be reformed, to focus resources more on disadvantaged children.

The organisation, which gathers data on countries to further its aim of stimulating economic progress and world trade, said: "Monetary policy should remain expansionary, even if headline inflation is significantly above target, to support the economy.

"All in all, a subdued recovery is expected over the next two years."

Edited by GordonBrownSpentMyFuture
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The OECD cut its growth forecast for the UK on Wednesday, saying the economy still faced significant risks at home and abroad, but praised the government's "ambitious" deficit-cutting plans.

Weak domestic consumption, falling house prices, fiscal consolidation and uncertain global demand all threatened growth, the Organisation for Economic Co-operation and Development said in a report published just a week before Chancellor George Osborne presents his budget to parliament.

Osborne, in a joint news conference with OECD head Angel Gurria, said his March 23 budget would mark a move "from rescue to reform," and maintain the government's five-year plan set out last June to largely eliminate a deficit that stood at 11 percent of GDP in the last fiscal year.

The OECD report came the same day that official data showed the highest number of unemployed Britons since 1994, though lower jobless benefit claims offered some grounds for optimism.

Reuters take on it.

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