Angel Gurria, head of the Organisation for Economic Co-operation and Development (OECD) said the Chancellor deserved a “pat on the back” – even echoing a Tory slogan by hailing the government’s “long-term economic plan”.
But he also warned that UK plc’s recovery would be in jeopardy unless productivity improved, and highlighted the continuing threat from high property prices.
Launching the OECD’s latest survey of the British economy, Mr Gurria noted 2.6 per cent growth last year was the highest in the G7. The OECD – which provides a forum on the economic policy of the developed nations – expects the rate to be the same this year.
Mr Gurria said the performance of the labour market had been “remarkable”, with three million jobs created over the past five years. Relative to the size of the UK population, the figures were even better than those recorded in the US over the period, he said.
“Even as unemployment has fallen, inflationary pressures have vanished … real wages are on the rise,” Mr Gurria told a press conference in the Treasury yesterday.
“We are predicting this economic expansion will continue this year and next.
“What a difference effective economic policies can make.”
In a comment that will have particularly pleased Mr Osborne and Prime Minister David Cameron, Mr Gurria said the coalition had “halved the deficit”. Both Mr Osborne and Mr Cameron have come under fire for making that claim as the deficit has only been halved as a proportion of GDP and not in cash terms.
“It [the deficit] is still high in comparison with the other OECD countries and therefore fiscal consolidation has to continue,” Mr Gurria continued. “My main message to you today is well done. Well done so far, Chancellor. But finish the job.
“Britain has a long-term economic plan, but it needs to stick with it. This is because recovery is work in progress, and despite many achievements there are a number of downside risks, and many are risks over which the UK really has no control.”
Mr Gurria stressed the danger of a property bubble, suggesting building on parts of the green belt had to be considered.
“The main domestic risk remains very volatile house prices,” he said. “The combination of rising demand and restrictions of supply mean that improving land-use planning, thoroughly reviewing the boundaries of the green belt, are more and more important.”
But he insisted the “biggest single challenge” for the UK was to improve productivity in the labour force. “Labour productivity has been weak, even compared to other countries which have also enjoyed solid job creation since 2010, such as Canada and the US,” Mr Gurria said.
“Reviving productivity is thus vital to maintain high growth and boost competitiveness. But it is also essential to boost real wages and purchasing power.”
He said real wages now appeared to be starting to rise. “For that trend to stay and for that trend to grow we do need increased productivity,” he added.
The OECD report said inflationary pressures from measures such as low interest rates had so far not materialised due to spare capacity in the economy, falling prices of oil and other commodities and exchange rate movements.
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