UK ‘heading for double-dip recession’

The OECD think tank forecasts that the economy will shrink in the last quarter of 2011 and the first three months of 2012 – and warns that the government might have to ease its programme of spending cuts in the short term.

It predicts that the British economy will contract by 0.1 per cent this quarter and 0.6 per cent in the first quarter of next year, with overall growth of 0.5 per cent in 2012, down from its previous estimate of 1.8 per cent in May.

But the British government’s message ahead of Tuesday’s autumn statement is that it is doing all it can to stimulate economic growth.

Its proposed infrastructure spending includes £20bn of pension fund capital investment, £5bn of capital spending for the next parliament, and £5bn of new capital spending – much of it to go on transport.

Read more: £30bn infrastructure programme 'aspirational'

Austerity measures

The decline identified by the OECD is attributed to weak demand for exports, the government’s austerity measures and the squeeze in consumer spending. The OECD said it expected unemployment to rise from 8.3 per cent to 9 per cent in 2013.

But the organisation is not expecting the sort of deep recession Britain went through in 2008-09, when the economy contracted by more than 6 per cent. It believes the economy will start to recover after six months of negative growth, with output rising by 1.8 per cent in 2013.

The OECD said it might be necessary to pump more money into the banks, with some of this cash possible coming from the taxpayer. It said the government might have to consider easing its spending cuts in the near future, with tougher austerity measures in later years, such as an increase in the retirement age.

Eurozone

The eurozone is also expected to go into recession, with growth of -1 per cent this quarter and -0.4 per cent in the first three months of 2012.

It is not the first time an international organisation has predicted tough times ahead for the British economy. In September, the head of the IMF, Christine Lagarde, said the country faced a “heightened risk”and had to be ready to respond “if it looks like the economy is headed for a prolonged period of weak growth and high unemployment”.