A leading global economic think tank dealt the Conservatives a double blow on the eve of the election by warning that growth is slowing and endorsing opposition plans for debt-fuelled spending.
The Organisation for Economic Co-operation and Development expects the economy to weaken both this year and next as Brexit uncertainty hits businesses and Britons contend with the sharpest pay squeeze among the world’s leading economies.
In its latest global update, it also called for more borrowing and spending than planned by the Tories, which would support growth, help Britain’s poorer regions and prevent widening inequality after Brexit.
The UK will grow by 1.6 per cent this year, compared with 1.8 per cent last year, and 1 per cent in 2018, the OECD said. The outlook was unchanged from its update in March, but leaves Britain the fourth-fastest-growing economy among G7 advanced nations this year after Canada, the United States and Germany, and the second-slowest in 2018, only just ahead of Italy.
“The economy is projected to slow in 2017 and 2018, owing to uncertainty about the outcome of Brexit negotiations,” the OECD said. Weak household spending, caused by rising inflation, and lower business investment were blamed.
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Analysis of the OECD figures by the TUC suggested that British workers were facing the worst squeeze on living standards of all 35 OECD members. Wages after inflation are forecast to shrink by 1.1 per cent next year, compared with an average increase of 1.1 per cent across the group.
Frances O’Grady, the TUC general secretary, said: “Boosting wages has to be a top priority for whoever gets the keys to Downing Street.”
In a further blow for Theresa May, the OECD said that low interest rates and the long duration of national debt gave the government “substantial fiscal space” to borrow for investment. The OECD has been supportive of austerity in the past and backed George Osborne. “Fiscal policy should be used to offset growth headwinds created by uncertainties surrounding the future withdrawal of the UK from the EU,” it said, urging the government to invest in transport and housing. “Further fiscal initiatives to increase public investment should be considered.”
In another bleak warning, it said that Britain “faces a longstanding decline in its export market share” and that poorer regions more dependent on manufacturing and agricultural trade could bear the brunt of the Brexit shock. The think tank’s pessimism stems from its assumption that the UK will revert to World Trade Organisation rules from April 2019.
The OECD’s downbeat picture for the UK was not reflected elsewhere. It raised its global growth forecasts from 3.3 per cent to 3.5 per cent for 2017, the fastest pace of growth in six years, as the eurozone, Japan and China were all upgraded. The United States was downgraded sharply from 2.4 per cent to 2.1 per cent this year and 2.8 per cent to 2.4 per cent in 2018, which the OECD blamed on delays to the Trump administration’s plans for tax cuts and infrastructure spending.