OECD warns recovery will be slow in UK

THE ORGANISATION for Economic Cooperation and Development (OECD) yesterday called on the government to devise a more &ldquo;ambitious&rdquo; schedule to rebalance the budget and warned that the UK&rsquo;s recovery will be slow.<br /><br />In a report on the economy, the leading think tank warned that unemployment will rise to 10 per cent in the UK, and called for &ldquo;more explicit&rdquo; spending cuts and tax rises to balance the deficit it expects to hit 14 per cent of gross domestic product (GDP) by next year.<br /><br />The OECD recently revised down its short-term outlook for the UK economy to a contraction of &ndash;4.3 per cent this year, worse than the government&rsquo;s forecast of &ndash;3.5 per cent.<br /><br />The OECD added that the financial crisis is likely to lead to a permanent drop in the size of the UK economy.<br /><br />The warning comes days after the Governor of the Bank of England, Mervyn King, urged the Treasury to set tougher goals to address the &ldquo;extraordinary&rdquo; public deficit.<br /><br />The body recommended that the length and severity of the recession makes it necessary for the UK to improve productivity and do more to retrain the unemployed.<br /><br />Tougher measures to balance the budget include &ldquo;explicit targeting of programmes for expenditure cuts and temporary revenue-raising measures&rdquo; and a role for an independent fiscal authority to assess whether the government was sticking to its spending rules.<br /><br />In yesterday&rsquo;s report, it also said that the &ldquo;continuing weakness&rdquo; in the financial sector is holding back the UK economy.<br /><br />The body supports the approach proposed by the Financial Services Authority chairman Lord Turner to strengthen capital and liquidity requirements and &ldquo;macro-prudential&rdquo; regulation.<br /><br />The Treasury is expected to unveil its own proposals for revised financial regulation this week, but the OECD said that &ldquo;there remains the risk of unhelpful conflict between the Bank and the FSA&rdquo; which could result in some issues falling between the responsibilities of the organisations.<br /><br />Business secretary Lord Mandelson said yesterday the government will not publish its future spending plans before the next General Election.