The OECD just slashed its UK growth forecast and warned the world is in a "low-growth trap"

Emma Haslett
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The OECD stomped all over UK growth (Source: Getty)

One of the world's most influential economic organisations has slashed its forecast for UK growth next year.

The Organisation for Economic Co-operation and Development (OECD) said today it expects UK GDP to grow one per cent in 2017 - down by one percentage point from its prediction in June.

However, this year, growth will hit 1.8 per cent, up 0.1 percentage points from its June forecast.

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The news comes after official figures published today showed government borrowing rose to £10.5bn in August.

Not surprisingly, the organisation put its cut down to the Brexit vote, which it said had caused downside risks thanks to uncertainty about the future path of policy and the reaction of the economy.

"In the longer term, the UK’s future trading arrangement with the EU and other partners will be critical to its economic prospects," it said.

"Spillovers to the global economy, notably the euro area, have been modest so far, including through confidence and financial markets weighing on investment; more negative effects on the euro area are likely to become apparent in 2017."

Low-growth trap

Meanwhile, the OECD added that global growth will hit 3.2 per cent in 2017, down from the 3.3 per cent it said it expected in June.

That's partly thanks to volatility in financial markets caused by (you guessed it) the Brexit vote - but also because a "low-growth trap" has taken root, it added.

"Poor growth expectations [have] further depressed trade, investment, productivity and wages," it said, pointing the finger at a lack of support from governments for trade policies - and warning that monetary policy is becoming "over-burdened".

Exceptionally low – and in some cases negative – interest rates are distorting financial markets and raising risks across the financial system. A disconnect between rising bond and equity prices and falling profit and growth expectations, combined with over-heating real estate markets in many countries, increases the vulnerability of investors to a sharp correction in asset prices.

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