Home Business NewsEconomic News UK heading for double-dip recession, warns OECD

UK heading for double-dip recession, warns OECD

by LLB Editor
28th Nov 11 1:53 pm

The UK economy is on the brink of a double-dip recession, warns the Organisation for Economic Co-operation and Development (OECD).

Predicting a double-dip recession in the UK for the first time, the economic think tank said that the UK’s GDP will slow down in the final quarter of 2011 and the first quarter of 2012. (An economic recession is defined as two successive quarters of negative growth, i.e. the economy shrinking.)

Ahead of chancellor George Osborne’s Autumn Statement on Tuesday, the OECD’s bleak forecast predicts that the UK economy will grow by just 0.5 per cent throughout the whole of 2012 because of a low demand for exports and the government’s austerity measures.

Even though inflation is expected to fall below 2 per cent, the OECD said that unemployment might reach nine per cent because of lay-offs during the banking crisis and first recession.

It also said the Bank of England should expand its quantitative easing programme to £400bn, meaning a further injection of £125bn into the economy by buying government bonds.

The think tank said that the economy might even be worse than its forecasts, as the Eurozone crisis hits the banking sector.

“Prospects only improve if decisive action is taken quickly,” said OECD chief economist Pier Carlo Padoan. “In the Euro area, the risk of contagion needs to be stemmed through a substantial increase in the capacity of the European Financial Stability Fund, together with a greater ability to call on the European Central Bank’s balance sheet. Much greater firepower must be accompanied by governance reforms to offset the risk of moral hazard,” he said.

The British Chambers of Commerce said the risk of another recession “cannot be shrugged off,” predicting the Bank of England will add to its bond-purchase plan early next year.

“With UK growth likely to be minimal in the next two to three quarters, and with the Eurozone likely to record negative growth in the near future, we expect the Monetary Policy Committee to increase the quantitative-easing program further early in 2012. The worsening Eurozone debt crisis and the fiscal austerity will have a more serious impact on the UK economy than previously predicted,” BCC chief economist David Kern said.

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