A report issued by the OECD has warned that a group of countries including the UK require "substantial fiscal consolidation". Nations including Greece and Portugal with debt to GDP in excess of 100 per cent have been told that they could face fiscal consolidation of three to six percentage points.
Comments on the manner of current deficit reduction were positive, noting that the UK "now rightly relies primarily on cuts in current spending" but said that these "could be made more broadly based, whilst preserving capital spending".
The OECD's economists forecast that current fiscal consolidation will cost the UK GDP growth of about one per cent in 2013 and 2014. GDP forecasts were trimmed from 0.9 per cent to 0.8 per cent in 2013, and 1.6 per cent to 1.5 per cent in 2014. The organisation warned that there were doubts about the effectiveness of further QE, cautioning against further asset purchases.
Our reporter Tim Wallace:
OECD very clear it backs Osborne: "The pace of fiscal consolidation is appropriate and should be implemented as planned." Huge contrast with IMF recommendations.
In fact OECD goes further: "With high budget deficit and govt debt reaching 90% of GDP in 2012, further fiscal consolidation is necessary."