'UK is the best', says OECD

The UK will grow far faster than its European neighbours, reckons the think tank. Although US fiscal problems could put paid to that.

by Emma Haslett

The UK is the smug little goody two-shoes of Europe today, after Paris-based think tank the OECD raised its growth forecast for next year by almost 1% to 2.4%, saying signs of improvement are ‘particularly apparent’ and that monetary policy is ‘appropriate’. As George Osborne almost definitely put it: hah.  

This is quite a change from the OECD’s previous forecast in May, which put UK growth for this year at 0.8% (now revised to 1.4%).

The news for the rest of the world was less thrilling: from growth of 3.1% this year and 4% in 2014, it reduced its forecasts to 2.7% and 3.6% respectively.

For the eurozone, the figures were more encouraging, but only slightly: having originally predicted a 0.6% contraction this year followed by 1.1% growth next year, it now expects a more optimistic 0.4% contraction this year, although that will be followed by muted 1% growth in 2014.

The reason behind its (largely) pessimistic forecast are threefold, said the organisation’s chief economist, Pier Carolo Padoan.

‘First, the reaction to discussion in early summer regarding the tapering of asset purchases by the Fed was surprisingly strong. Second, increased concerns about developments in some [emerging markets] added to market tensions and sharp capital outflows. Third, the United States came close to a potentially catastrophic crisis associated with its legislative ceiling on federal government debt.’

Clearly, the US is keeping OECD-ers awake at night: the organisation called on the Fed to begin a ‘gradual winding down of asset purchases… to limit impacts on vulnerable emerging-market economies’.

The other big worry, US-wise, is another potential fiscal deadlock: although Congress reached a temporary agreement which saved the country from default last month, that only lasts until February (public sector funding is until mid-January) – so that deadlock is still in place, even if the crisis has been averted for a couple of months.

Still, at least the UK can console itself that it’s the best – albeit of a bad bunch. Although a US default would put a spanner in those particular works pretty quickly…

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