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Last Updated: Wednesday, 12 October 2005, 11:33 GMT 12:33 UK
OECD slashes UK growth forecasts
Gordon Brown
Gordon Brown's fiscal rule could be safe this time round
The UK economy is expected to grow at a slower-than-expected pace this year, but there is no need for more rate cuts, an influential report says.

The Organisation for Economic Cooperation and Development (OECD) has cut its forecast for UK growth from 2.4% to 1.7% this year.

It added the chancellor would meet his "golden rule" - of borrowing only to invest - in the current economic cycle.

But the group warned taxes may have to rise in the next cycle.

It warned such a move may be necessary to ensure public finances are on a sound footing at the start of the next economic cycle.

There is not yet a compelling case for further rate cuts

"The government's recently revised judgment that the current cycle began two years earlier than they had previously thought will help to meet the golden rule over the current cycle," the report said.

Earlier this year Mr Brown came under fire for switching the date when the current economic cycle began from 1999 to 1997.

The move stretched the current cycle to nine years - triggering claims from critics that Mr Brown was "cheating".

Steady indicators

With the economy operating "at or slightly above capacity" the slowdown in GDP growth forecasts was "perhaps not unwelcome", the OEDC said.

The Bank of England cut interest rates in August by a quarter point to 4.5% on the grounds that economic growth was subdued.

Meanwhile, the OECD said the risk of a sharp slowdown in household spending, driven by the recent slowdown in the housing market, had dimmed.

Inflation - measured by the consumer price index - was expected to average 2.1% in 2005, up from a forecast of 2.0% made in the middle of the year, the OECD said.

It also left its 2006 forecast for growth in the world's fourth-largest economy unchanged at 2.4% and also expected its forecast for inflation to remain at 2.1%.

"Given that the level of output is currently close to capacity, that inflation is now above target and short-term indicators suggest growth may return to trend, there is not yet a compelling case for further rate cuts," the report said.

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