THE GOVERNMENT must continue with its deficit reduction plan if it wants to turn the UK’s economy around and establish the recovery, the influential Organisation for Economic Co-operation and Development (OECD) said yesterday.
And the European Commission (EC) argued Britain should even accelerate its program of spending cuts to get the deficit down to below three per cent of GDP in 2015.
The recommendations represent strong backing for chancellor George Osborne who came under attack from the International Monetary Fund which said he should slow down his push to balance the books.
“The pace of fiscal consolidation of about one per cent of GDP per year in both 2013 and 2014 is appropriate and should be implemented as planned, while letting automatic stabilisers operate in the event growth disappoints,” said the OECD’s report.
“With high budget deficit and government debt rising to 90 per cent of GDP in 2012, further fiscal consolidation is necessary to restore the sustainability of public finances.”
The think tank cut its growth forecasts for the economy to 1.4 per cent in 2014, down from earlier estimates of 1.6 per cent.
It blamed the ongoing Eurozone crisis for the continued gloom.
“The muted global recovery, especially in Europe, and the necessary adjustment of still-impaired public and private sector balance sheets continue to weigh on growth. Despite a resilient labour market, private consumption is held back by weak average real earnings,” it said.
Meanwhile the European Commission said the UK should consider more cuts to push the budget deficit below three per cent in 2015, from the six per cent forecast.
“Over the period 2010-11 to 2012-13, the average adjusted fiscal effort is estimated at one per cent of GDP, well below the 1.75 per cent of GDP recommended by the Council,” the EC said.
However the Labour opposition argued there are alternatives to cutting spending which could still boost growth.
“The OECD is just the latest organisation to say that the government needs to increase the number of homes being built and that investing in infrastructure now will improve our economy for the future,” said shadow treasury minister Chris Leslie.