UK ‘joins Italy and Japan at the bottom of economic pile’

The Organisation for Economic Co-operation and Development (OECD) revised its growth estimates, predicting a 0.7 per cent decline in gross domestic product (GDP) this year.

The OECD forecast is significantly worse than the 0.5 per cent expansion, which was predicted last year, when the think-tank slashed its forecast from growth of 1.8 per cent.

Yesterday’s gloomy figures also predicted that the UK is predicted to be the third worst performing G7 nation apart from Japan and Italy this year.

However, the OECD warned its forecast does not take into account the effects of the Queen’s Diamond Jubilee and Olympics.

Many expect both major events provide a boost to the economy through an increase in tourism, though it is unclear what impact it will have on the high street, with many staying away from the centre of London during the Games.

The OECD predicts the UK economy will not return to growth until the final quarter of the year, when it will expand marginally. The Paris-based

organisation, which works to improve social and economic wellbeing across the world, warned that the worsening

eurozone debt crisis is dragging on the entire global economy.

The OECD suggested that countries suffering weak growth should cut interest rates if they are above zero and said money-printing programmes could be expanded. It also called for more policies to be enacted to instil confidence in the eurozone, which it said remains “the most important risk for the global economy”.

The organisation’s chief economist, Pier Carlo Padoan, said: “Our forecast shows that the economic outlook has weakened significantly since last spring.

“The slowdown will persist if leaders fail to address the main cause of this deterioration, which is the continuing crisis in the euro area.”

The report suggests that the eurozone crisis is now spreading to the currency bloc’s core countries of Germany and France, which have previously helped prop up the weaker debt-ridden states in the periphery, but will slip into recession in the second half of 2012.

Highlighting the dire state of the eurozone, it predicts the currency bloc’s three biggest economies – Germany, France and Italy – will contract by an annualised rate of one per cent in the current quarter and nearly as much in the next quarter.

The grim forecast came on the day that official figures confirmed that eurozone GDP contracted by 0.2 per cent in the second quarter of 2012, after zero growth the previous quarter.

The organisation also warned that there are further risks for the world economy posed by potential rises in oil prices and the lack of confidence caused by persistent unemployment. The report warned that recession was “taking hold” in the

17-nation euro bloc.

The body’s forecast for Germany was cut to a decline of 0.5 per cent in its annualised quarter-on-quarter GDP figure for quarter 3.

Outside Europe, the OECD said in its report that the US was now seen as growing by 2 per cent in the third quarter and Canada by 1.3 per cent. Japan’s economy is, however, expected to see a decline of 2.3 per cent in quarter 3, based on the same assesment.

The Prime Minister’s official spokesman said: “Those figures demonstrate what we know, which is that these are very

difficult times in the world economy.

“The OECD highlights the euro area crisis as the single biggest global economic risk and, in addition to that problem, that the UK is dealing with

some deep-rooted issues at home.

“All the evidence shows that recovery from the financial crisis takes a long time and there is no doubt we still have an impaired banking and financial system in this country.

“Clearly, it is going to be difficult for us in this country while there are continuing problems in the eurozone.”

Shadow chief secretary to the Treasury Rachel Reeves said: “These very concerning forecasts show just how badly the government’s economic policies have failed.

“Britain’s growth forecasts have been slashed by more than any other major economy. And while ministers desperately try to blame all our problems on the eurozone crisis, the OECD says France and Germany are doing better than us.

“In fact, Britain is one of just two G20 countries in a double-dip recession.

“David Cameron and George Osborne need to stop clinging on to their failed economic plan and change course now.

“Without a serious plan for jobs and growth, we won’t get the deficit down and yet more long-term damage will be done.”

At home, a separate set of figures gave another indication of the financial hardships facing people.

Data issued by the Office for National Statistics showed that almost one-third of households in some parts of the UK have no people in employment.

Glasgow topped the workless household league in Scotland, with 28.7 per cent of households having no-one in work.

A regional breakdown of national data showed that Liverpool had the highest percentage of workless households in the UK.