OECD predicts ‘double-dip’ downturn

Britain has failed to address the underlying problems in its financial system which first caused the recession and so faces further fall-out, the Organisation for Economic Cooperation and Development (OECD), has said. In its annual health check it blamed a continuing lack of bank lending for the UK's woes and noted that it was still mired in recession with a "bleak" outlook due to the "limited progress in addressing the underlying problems in the financial sector".

The bearishness flies in the face of current talk of 'green shoots' from many corners, but does echo the opinion of some commentators, including Nouriel Roubini, who first forecast the world downturn. Figures yesterday showed that little of the Bank of England’s quantitative easing is making its way into the real economy, with bank lending still at anaemic levels.

The OECD also entered the spat over the UK’s public finances, telling the government to cut the size of its deficit urgently. It forecast that the shortfall would oustrip the Treasury’s own 80 per cent estimte of output, instead saying it would approach the 90 per cent level. As a result it advises spending cuts, themselves likely to prove a drag on growth and the economy’s ability to sustain any improvement. The organisation recently downgraded its forecast of UK growth to -4.3 per cent.

WHAT THEY ARE SAYINGShadow Chancellor George Osborne in the Daily Telegraph: "This morning, Peter Mandelson and Alistair Darling could not even agree on whether there will be a spending review. Now, at lunchtime, the OECD says the Government has got to be more 'ambitious' and more 'explicit' about the need for spending cuts to deal with Labour's debt crisis."

Liberal Democrat treasury spokesman, Vince Cable, in the Guardian: "The government cannot simply close its eyes and hope that the budget deficit will sort itself out. We must make the tough decisions about what government can and cannot afford to do in the upcoming years." ·