Double-dip now underway, OECD warns
By Alex Stevenson Follow @alex__stevenson
Britain's economy has begun a contraction which will push it into recession by the end of March, according to the Organisation for Economic Cooperation and Development (OECD).
It predicted UK GDP would shrink by 0.03% in the final three months of 2011 before contracting by 0.15% in the first quarter of 2012.
Two consecutive quarters of negative growth is the technical definition of a recession, meaning the feared double-dip is already underway – if the OECD is correct.
"This out-of-touch government needs to realise that a flatlining economy and more people out of work claiming benefits make it harder to get the deficit down," shadow chancellor Ed Balls said.
"We will find out tomorrow just how much extra borrowing than planned a year ago David Cameron and George Osborne’s failed plan is costing the country.
"It cannot be right to borrow tens of billions of pounds to keep people on the dole, when we could be investing to get people back to work with Labour's five-point plan for jobs."
The OECD predicted Britain's economy will grow by just 0.5% next year amid a "mild recession" across the eurozone.
Its latest monthly outlook predicts the UK economy will grow by 0.9% in 2011 and just 0.5% in 2012 – significantly down from the 1.7% and 2.5% predicted by the Office for Budget Responsibility in March.
It blamed weak international demand, poor consumer demand and "needed fiscal consolidation" for stopping the recovery in its tracks.
But despite predicting unemployment will reach nine per cent it said growth would start to pick up in 2012 and strengthen further in the following year.
Yesterday Mr Balls accused the government of having gone too far with its uncompromising programme of spending cuts, telling BBC1's The Andrew Marr Show the government had made a "catastrophically wrong decision".
The OECD's report will bolster the confidence of those in government that the right steps are being taken, however.
It stated: "The ambitious fiscal consolidation has bolstered credibility and helped maintain low bond yields, leaving room for automatic stabilisers to work fully to cushion the slowdown."
Mr Balls added today: "The OECD remains diplomatic in its language, but both the OECD and the IMF were clear this summer that if the economy continues to underperform with slow growth then the pace of spending cuts and tax rises should be slowed down to support the economy.
"Families and businesses in Britain can’t afford to wait for things to get worse before the government realises its plan to cut spending and raise taxes too far and too fast isn’t working."
Chancellor George Osborne will use tomorrow's autumn statement to claim Britain's credit-worthiness has enabled the government to make funds available to quicken the recovery.
The OECD offered a more gloomy prognosis as it assessed the global economic situation, which remains unstable as the eurozone crisis continues.
"Advanced economies are slowing down and the euro area appears to be in a mild recession," it said.
"In view of the great uncertainty policymakers now confront, they must be prepared to face the worst."
Its strategic response recommended a number of steps needed if a "downside scenario", prompted by a banking collapse, contagion in the eurozone or an "excessively tight fiscal policy in the US, materialises.
"The financial sector must be stabilised and the social safety net protected; further monetary policy easing should be undertaken; and fiscal support should be provided where this is practical," it suggested.
"At the same time, stronger fiscal frameworks should be adopted to reassure markets that the public finances can be brought under control."
