OECD: UK economic recovery will lag behind all rivals bar Argentina | Business
The UK’s economic recovery from the coronavirus pandemic will lag behind every other major economy apart from Argentina, according to the Organisation for Economic Cooperation and Development.
Warning the UK and other countries to resist cutting government spending in order to ensure a stronger rebound, the club of 37 rich nations said severe risks to growth and jobs still remained despite the prospect of a vaccine being deployed earlier than first anticipated.
In its latest economic outlook report, the Paris-based organisation said it expected the UK economy to contract by 11.2% this year, compared with the 10.1% fall in GDP it was forecasting in September. The OECD also sharply downgraded its forecasts for UK growth next year, to 4.2% from 7.6% three months ago.
It said world GDP was on track to return to pre-pandemic levels by the end of next year fuelled by the rollout of vaccines and strong growth in China. However, it warned the UK economy would still be 6% smaller compared with its late-2019 position at that stage. Only Argentina fared worse among 20 nations and the eurozone.
In an assessment of the UK that warned the country was at a “critical juncture”, the OECD said there was a double threat to growth from the second Covid wave and Brexit, with less than a month before the EU transition period expires at the end of December.
Urging both sides to reach an agreement, it said a deal was essential for economic prosperity, and that failure was among the large downside risks to its forecasts.
“The failure to conclude a trade deal with the European Union by the end of 2020 would entail serious additional economic disturbances in the short term and have a strongly negative effect on trade, productivity and jobs in the longer term,” it said.
Against a backdrop of heavy government borrowing to assuage the economic impact of the pandemic, the OECD said nations needed to continue to make use of record-low borrowing costs to spend on protecting businesses and households. This would help pave the way for faster and more sustainable growth in future, the organisation added.
In a clear warning to nations contemplating spending cuts or tax rises, including the UK, the OECD said there was a risk that the lessons from the 2008 financial crisis would be forgotten – when government austerity drives choked-off growth and entrenched inequality.
It comes after the UK chancellor, Rishi Sunak, used his spending review to impose a pay freeze on public sector workers outside the NHS and slashed the overseas aid budget to tackle record levels of government borrowing this year.
Laurence Boone, the chief economist at the OECD, said: “We made the mistake in 2010; we need to learn from the mistake. We need to keep up the support for the people and those in and out of jobs. We must make sure income is supported.”
Urging governments to continue spending while awaiting a vaccine, she added: “When you’re in a battle and you know the cavalry is coming, you don’t stop fighting. In fact you keep fighting until the cavalry is around. In fact you keep fighting while the cavalry is there.”
Updating its forecasts from previous estimates made in September, the OECD said the global economy was now set to shrink by 4.2% this year, slightly below a previous forecast of 4.5%, before rebounding by 4.5% next year as vaccines are deployed around the world.
However, it said the second wave of the pandemic continuing into the start of 2021, before immunisation programmes could get under way, meant its forecast for next year was below its September estimate for 5% growth.
Angel Gurría, the secretary general of the OECD, said: “For the first time since the pandemic hit in early 2020, we have hope. The good news about vaccines has instilled a degree of optimism and somehow dissipated the fog of uncertainty that has covered us all.
“There is hope but we’re not out of the woods yet.”