OECD warns Britain on pace of spending cuts:

26th May 2011, Comments 0 comments

The British government's drastic programme of spending cuts to slash a record deficit may have to be slowed, the OECD think-tank has warned, after earlier strongly backing the plans.

Pier Carlo Padoan, chief economist of the Organisation for Economic Cooperation and Development, told The Times newspaper there was "scope for slowing the pace".

The OECD cut its growth forecast for Britain on Wednesday for the second time this year and said in its semi-annual report that the government's fiscal consolidation "strikes the right balance and should continue".

The International Monetary Fund and the OECD have been among the strongest supporters of the programme of deep public spending cuts introduced by Prime Minister David Cameron's coalition government since it came to power a year ago.

Padoan however expressed some concern at the speed of the cuts in light of the new growth forecasts.

"We see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front," he said.

"We have seen that (growth numbers) are a bit weaker than expected. Should that continue to be the case, there is scope for slowing the pace."

The OECD now predicts GDP will grow at 1.4 percent in 2011, downgraded from the 1.5 percent it forecast in March and the 1.7 percent it had estimated previously.

It also said that the British economy will grow by 1.8 percent next year, instead of 2.0 percent.

In March, British finance minister, Chancellor of the Exchequer George Osborne, cited the OECD's support for the government's tough measures which it said were "unavoidable in the short term" to put Britain on the route to a strong recovery.

The main opposition Labour Party has argued the cuts are taking place too quickly.

Labour's finance spokesman Ed Balls said Padoan's warning was "a very significant intervention".

"Even the OECD, which has traditionally supported government economic policy and George Osborne's deficit reduction plan, is now saying the Chancellor should consider changing course," he said.

A spokesman for the finance ministry said: "The Chancellor has been clear that the recovery is likely to be choppy given the scale of the imbalances and depth of the recession."

© 2011 AFP

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