UK economy: Britain back in recession, say OECD

The prediction by the Organisation for Economic Co-operation and Development (OECD) suggests that the UK economy will shrink for the second quarter running in the first three months of this year.

That would put the UK into a technical recession after the government received bad news earlier this week that the contraction in the last quarter of 2011 was worse than expected.

While the claim by the OECD contradicts the independent Office of Budget Responsibility’s (OBR) prediction for this year, the two together appear to confirm that the UK economy is flatlining.

• Read the OECD report that says the UK economy will plunge back into recession

Labour’s shadow chancellor Ed Balls blamed government policy for the lack of growth.

He said: “Last year the deputy head of the OECD said if growth is slower than expected the government should slow down the pace of tax rises and spending cuts.

“That is what the OECD is now forecasting and, with our economy flatlining for over a year, it’s time the chancellor listened to wise advice,” Mr Balls said.

The Scottish Government has complained that the UK government needed to provide money for a stimulus programme of “shovel-ready projects” which was absent from the Budget.

The Chancellor George Osborne pointed to some positive recent data and insisted that his Budget, which included a two per cent cut in corporation tax and raising of the tax threshold, will help stimulate growth.

He said: “We will see what the data shows in the next few weeks but there’s been some more encouraging economic signs in recent months.”

There was some good news for the government after the Office for National Statistics said the powerhouse services sector grew by 0.2 per cent between December and January, following a slight decline in the final quarter of 2011.

However, it is generally agreed that the UK’s economic growth will be feeble for the first half of 2012 at least, although falling inflation should increasingly deliver a boost to consumer spending as the year progresses.

Philip Shaw, an economist at Investec, predicted the economy will grow by 0.3 per cent in the first quarter of the year.

He said: “Recent indications suggest the UK’s economy will have expanded in the first quarter. Our own view is that the OECD is being too gloomy.

“The services sector appears to have strengthened, the manufacturing sector is recovering since the end of last year and there’s been signs of strength in retail spending.”

The OECD warned of a two-speed recovery developing in the G7 nations, with North America enjoying a rapid expansion but Europe being weighed down by austerity measures.

The OECD said the recent hikes in oil prices, which have pushed Brent crude to more than $120 a barrel, would push inflation up higher than it previously thought, wiping up to 0.2 per cent from growth across G7 nations over the next year.

It expects Italy, which is already in recession, to contract for the first two quarters of 2012, while France will contract in the first quarter and Germany’s growth will be lacklustre.

• Read the OECD report that says the UK economy will plunge back into recession