OECD downgrades UK growth outlook

The OECD cut its forecast for British growth this year but said today that the economy was running near capacity and that there…

The OECD cut its forecast for British growth this year but said today that the economy was running near capacity and that there was no need for further Bank of England interest rate cuts.

In a broadly positive assessment of the world's fourth largest economy, the Organisation for Economic Cooperation and Development said the risk of a sharp slowdown in consumption through a potential correction in the housing market had dimmed.

"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.

The OECD cut its forecast for UK growth this year to 1.7 per cent - broadly in line with other forecasters - from 2.4 per cent in June but it held 2006's projection at 2.4 per cent.

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That puts it sharply lower than UK finance minister Gordon Brown's budget forecast of 3.0-3.5 growth this year and is even below the rough 2.0-2.5 percent rate that Brown hinted would be the eventual outcome. The Treasury, however, welcomed the report's positive tone.

"Today's report claims that the UK is today the most stable economy in the G7 - having been one of the least stable in 1997 before the introduction of the new monetary and fiscal framework," said a spokesman.