The OECD had previously expressed its support for the government's deficit reduction plans
George Osborne has been told by an influential economic thinktank that his drastic deficit-cutting plans may have to be watered down if Britain's economy remains sluggish.
Pier Carlo Padoan, chief economist of the Paris-based Organisation for Economic Co-operation and Development (OECD) told the Times there was "scope for slowing the pace," after the thinktank cut its UK growth forecast for the second time this year.
"We see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front," he said. "We have seen that [the growth numbers] are a bit weaker than expected. Should that continue to be the case, there is scope for slowing the pace." The OECD had previously expressed its support for the government's deficit reduction plans.
The thinktank now predicts the British economy will grow by 1.4% in 2011, downgraded twice from 1.5% in March and a previous forecast of 1.7%. Next year the economy is expected to expand by 1.8%, instead of 2%.
Interest rates, which have been held at a record low of 0.5% for more than two years, will need to start rising this year to stave off high inflation, it added.
Its forecasts are significantly lower than those of the UK government's financial watchdog, the Office for Budget Responsibility, which predicts growth of 1.7% this year and 2.5% for 2012.
In March, Osborne pointed to the OECD's verdict when he defended his tough measures in the budget, which the thinktank said were "unavoidable in the short term" to put the UK on the route to a strong recovery.
Shadow chancellor Ed Balls said: "This is a very significant intervention. Even the OECD, which has traditionally supported government economic policy and George Osborne's deficit reduction plan, is now saying the chancellor should consider changing course.
"George Osborne's rigid determination, despite all the evidence, to stick with deep and fast cuts and refuse to even consider a plan B does not boost his credibility, it undermines it."
A Treasury spokeswoman said: "The OECD has endorsed the Government's economic strategy, saying that the deficit reduction plan 'strikes the right balance and should continue'. The chancellor has been clear that the recovery is likely to be choppy given the scale of the imbalances and depth of the recession. The budget set out a plan for growth, to help support recovery and rebalance the economy."
Source: http://www.guardian.co.uk/business/2011/may/26/george-osborne-spending-cuts-oecd
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