Economic outlook worsens

Wednesday, 7 September 2005 12:00 AM

New forecasts suggest the UK economy is growing at a rate well below that predicted by chancellor Gordon Brown.

The Organisation of Economic Cooperation and Development (OECD) yesterday cut its forecast from 2.4 per cent to 1.9 per cent - well below Mr Brown's estimates of three to 3.5 per cent for the year.

The Paris-based economic think tank's chief economist, Jean-Philippe Cotis, explained that the cut was a prediction of an "economic shock" due to high oil prices.

"We took notice of the slowdown which is underway as well as personal consumption in the UK, in the wake of the changing climate of the housing market," he told Today.

He said the Bank of England faces a "dilemma" when considering interest rates after recent months have shown core inflation rising.

"What we are saying is that compared to the rise of interest rates, maybe tightening in the future could be a bit more measured knowing the current circumstances and the uncertainty of the economy," said Mr Cotis.

However, he said he would not suggest a cut in interest rates "at the current juncture". Last month's quarter percentage point cut was the first since July 2003.

This sentiment was echoed by a report from the National Institute of Economic and Social Research (NIESR), which suggested another interest rate was unlikely in the short term.

Its research published today found the UK economy grew by 0.5 per cent in the three months to August, expanding a tenth of a percentage point on the three months to July.

The Bank of England's Monetary Policy Committee is widely expected to keep interest rates on hold at 4.5 per cent when it meets on Thursday.

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