The OECD revised upwards its forecasts for growth in the British economy for 2010 but cut its outlook for 2011 following the announcement of deep spending cuts designed to tackle a record budget deficit.
The Organisation for Economic Co-operation and Development (OECD) welcomed the coalition government's "ambitious medium-term plan" to cut spending which it said had significantly reduced fiscal risks.
As a result, it said it now expected real GDP growth of 1.8 per cent in 2010, compared with a forecast of 1.3 per cent made in May, slipping back to 1.7 per cent to 2011 compared with an earlier target of 2.5 percent.
It forecast growth of two per cent for 2012.
"GDP growth in the first three quarters of 2010 was robust, reflecting broad-based growth in domestic demand, including from a needed rebuilding of inventories," the report said.
"The pace is set to slow, however, as contributions from stockbuilding fade and fiscal consolidation creates increasing headwinds."
The government has announced plans to cut public service spending as part of an £81bn cost-cutting drive over the next four years aimed at tackling a record budget deficit running at about 11 per cent of national output.
The Paris-based think-tank, funded by 30 countries including Britain, said growth would remain modest during 2011 as public consumption and public investment fall, while household consumption remains subdued due to slow real income growth and stagnant asset prices.
It said further increases in exports, supported by rising global demand and a weak exchange rate, should underpin a somewhat stronger recovery in 2012.
City A.M. Reporter