Don't Get Your Hopes Up Over The Recovery Yet, OECD Warns

Don't Get Your Hopes Up Over The Recovery Yet

, OECD Warns

One of the world's most significant financial bodies has reduced its prediction for economic growth in the UK in 2011. The Organisation for Economic Cooperation and Development (OECD) has reduced its forecast for UK GDP growth in 2011 from 1.7 per cent to just 1.5 per cent and believes that the government's economic policy could reduce this growth even further.They said that the UK will increase in growth by around 2%, which is almost half of that predicted for other strong countries in the European Union. This shows just how slowly our economy is recovery in relation to our close countries.The Government's new organ for preventing deficits and waste, the Office for Budget Responsibility, recently forecast higher growth at 2.1 per cent, a figure that seems more than a little optimistic compared to the ominous outlook that the OECD has offered.A recent OECD report stated the recovery began in earnest during 2009 and will only now face choppy waters in 2011, but this can be "Mitigated by monetary policy remaining supportive." Monetary policy translated from financial speak means interest rates, so the Bank of England can use the money supply to help steer the economy to higher ground, something which Euro country's cannot do as they surrendered their monetary sovereignty.The OECD have made it quite clear that the situation lies in the hands and on the shoulders of our government, and that only they can currently save the country from falling into another financial crisis by controlling interest rates and encouraging spending.As things stand, the Bank of England have confirmed that there will be no immediate increases in the base interest rate, however it has also been said that increases will occur later in 2011, possible in the final quarter of the year.One of the largest contributing factor to the state of the UK economy in recent years has been the increase in the price of commodities due to the growth in China, which has put pressure on UK business.A monetarist approach to combating inflation involves restricting the supply of money in the economy. The argument goes that if you slow down spending, then you will reduce inflation. Whilst this may result in some short-term pain for the economy, the idea is that this approach will avert more significant problems in the future.However, rising commodity costs and other inflationary factors seem to be responsible for the current economic position. The Bank of England has very little control over these factors and so using interest rates to control inflation may actually have little impact.Consequently, the economy in the UK may remain quite weak over the next year. The OECD has a bleak outlook for GDP growth and, if interest rates were to rise, economic growth could even be worse than the OECD's reduced forecast.

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