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Last Updated: Thursday, 24 April, 2003, 11:47 GMT 12:47 UK
New doubts over UK economy
Gordon Brown
The OECD has become the latest body to say the UK economy is likely to grow more slowly than Chancellor Gordon Brown has predicted.

Growth should reach 2.1% this year and rise to 2.6% in 2004, the Organisation for Economic Co-operation and Development said.

But that growth prediction for next year is well below Mr Brown's forecast of between 3% and 3.5% announced in the Budget two weeks ago.

However, the UK won praise from the OECD for showing "greater resilience in weathering the downturn than any other major European economy".

House price danger

The OECD's forecast of 2.6% growth next year is still more optimistic than the 2.3% average prediction by independent forecasters.

The Paris-based organisation said growth would pick up thanks to rising government spending and higher exports, helped by a fall in the value of the pound.

And it said the deterioration in the government's finances was no immediate cause for concern as debt levels are so low.

The main risk to UK growth was seen as coming from a sharp fall in consumption which has been the main driver of the economy and has countered the weakness of the manufacturing sector.

The OECD warned that the Bank of England's surprise interest rate cut in February risked fuelling the house price boom and increasing the chances of a subsequent crash.

"A fall in the level of house prices, which in relation to average earnings are close to the peak reached in the late 1980s, could lead to a sharp retrenchment of consumers' expenditure," it said.

The OECD said inflation was likely to rise above the 3% level over the next few months, but would fall back towards the 2.5% target rate in 2004.

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