OECD tells UK to raise interest rates

The OECD has told the Bank of England that it must raise interest rates this year to avoid inflation. A new report from the economics thinktank stated that despite weaknesses in the UK economy, borrowing costs would need to be steadily increased over the next 18 months.

"A modest increase in interest rates should be taken during 2011 to stave off increases in inflationary expectations, which are already elevated," the report read. "As the recovery gathers momentum in 2012, the pace of normalisation of interest rates should be stepped up."

The suggestion comes amidst a heap of gloomy predictions in the OECD's half-yearly Economic Outlook. It said the UK's recovery would continue to lag behind other leading industrial nations, growing at 1.4 per cent in 2011 and 1.8 per cent in 2012. According to the report this, in turn, would result in unemployment rising to 8.1 per cent of the workforce this year and 8.3 per cent in 2012.

The OECD did repeat its support for Chancellor George Osborne's deficit reduction plans, but suggested VAT exemptions should be removed in order to boost public spending on the UK's infrastructure.

Read a full report in the Guardian. ·