By a Newsnet reporter
The influential thinktank, the Organisation for Economic Co-operation and Development (OECD), has warned that the UK’s economy is set to shrink by 0.7% this year and that the UK will fail to pull out of its “double dip” recession this year, as previously forecast by the Treasury. And in a further blow to Chancellor George Osborne, the UK government’s economic policies have been sharply criticised by former US Treasury Secretary Larry Summers.
The OECD’s new figure is a revision downwards of their previous prediction that the UK economy would grow by 0.5% this year. The only G7 member country whose economic outlook is worse than the UK’s is Italy, where the economy is forecast to shrink by 2.4% this year.
Contrary to claims made in the run up to the Olympics, it appears that the Games may not have delivered any significant boost to the UK economy, and will do little to aid the UK to escape from recession.
The OECD said that the eurozone crisis was the main factor in the worsening economic outlook, as business confidence around the world has been damaged as a result. However the organisation also warned against too much austerity and against huge cuts in public spending, saying that these acted “as a drag” on economic recovery. The OECD urged governments and central banks to do more to boost growth.
However when speaking at a CBI Scotland dinner in Glasgow on Thursday evening, Mr Osborne inisted that his economic policies would deliver growth, saying:
“Our economy is healing – jobs are being created, manufacturing and exports have grown as a share of our economy, our trade with the emerging world is soaring, inflation is down, much of the necessary de-leveraging in our banking system has been achieved, and the world is once again investing in Britain.”
The Chancellor stressed that he would not change course and that his economic “strategy remains the same one set out at the beginning of this Government”.
However in what will be seen has a further blow to the Chancellor’s insistence that his austerity agenda is working, the UK Goverment’s economic policies were sharply criticised by former US Treasury Secretary Larry Summers. Mr Summers blamed austerity for creating a 1930s-style depression in the UK and called on the UK Government to abandon its “excessive slashing of public budgets”.
Mr Summer said:
“We have avoided the prospect of a 1930s-like experience in the United States. I cannot say the same with respect to Great Britain.”