HIGH inflation will squeeze UK household budgets well into next year, the Organisation for Economic Co-operation and Development (OECD) said yesterday.
The OECD cut its forecast for British growth to 1.4 per cent this year, down from March’s estimate of 1.5 per cent.
Back in November it was still expecting 1.7 per cent growth for 2011.
For 2012, the OECD expects a slight acceleration in growth to 1.8 per cent.
Yet monetary policy must begin to be normalised this year, the OECD said, while throwing its weight behind the coalition’s deficit-reduction plans.
“The fiscal consolidation strikes the right balance and should continue in line with the government’s medium-term plan to eliminate the deficit, while allowing the automatic stabilisers to work,” the report said.
“Normalisation of interest rates will need to start during 2011 to stave off significant increases in inflation expectations,” the OECD said.
Yet monetary policy should remain “expansionary”, it said, suggesting that the UK’s quantitative easing should not be reversed until 2013.
Growth for the UK was declared at 0.5 per cent for the first-quarter of the year, official data showed yesterday.
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The global economy will expand by 4.2 per cent this year, the OECD forecasts, accelerating to 4.6 per cent in 2012 – down from 4.9 per cent last year.
Japan’s outlook was slashed, following the disastrous earthquake and tsunami in March. The OECD now expects a contraction of 0.9 per cent for the Japanese economy this year, down from its previous forecast of 1.7 per cent growth.
The US economy will grow by 2.6 per cent this year, the OECD expects. The group revised up its forecast, from a prediction of 2.2 per cent made in November. The OECD urged the Federal Reserve to tighten its monetary stance.
Growth in the Eurozone should hit two per cent this year, the OECD expects, up from 1.7 per cent in its forecast from November 2010.
China could hit nine per cent growth in 2011, rising again to 9.2 per cent next year, the forecasts show. In neighbouring India, growth of 8.5 per cent is anticipated for this year.