UK recovery subdued for two years, says OECD

UK high street The OECD said the UK economy has become out of balance partly thanks to too much borrowing.
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UK Economy

* Jobless total hits 17-year high
* Further fall in Scottish jobless
* Report warns of housing shortage
* Rate rise 'could derail recovery'

The UK economic recovery will remain subdued for two years, with government spending cuts and slowing world trade weighing down growth, a report says.

The Organisation for Economic Co-operation and Development (OECD) estimated growth this year of 1.5%, rising to 2% in 2012.

The independent Office for Budget Responsibility's forecast is for 1.9% growth this year.

The OECD called the government's cuts "ambitious and necessary".

It said they were needed in order to achieve a sustainable recovery.

The wording is slightly different to a previous OECD report on the UK economy, when it called them "substantial but necessary".

The body, which is known to consult the governments of the countries it monitors, also suggested that interest rates should remain low.

The OECD warned that strong economic growth in the run-up to the 2008-09 recession had hidden a build-up of "significant imbalances", creating an over-reliance on the financial sector, booming asset prices and too much borrowing.

Spending cuts were needed to address these imbalances, it argued.
Reforms

It also said that reforms to the housing market should be made, with the aim of lowering asset prices and increasing affordability.
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The [OECD] report reserves its sharpest language for the state of the UK housing market - and the planning regime”

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image of Stephanie Flanders Stephanie Flanders Economics editor, BBC News

* Read Stephanie's blog

Education, too, should be reformed, to focus resources more on disadvantaged children.

The organisation, which gathers data on countries to further its aim of stimulating economic progress and world trade, said: "Monetary policy should remain expansionary, even if headline inflation is significantly above target, to support the economy.

"All in all, a subdued recovery is expected over the next two years."

The Chancellor, George Osborne, said the OECD report was a validation of his government's plans for the country: "The Budget [on March 23] will echo what I see as the central message of this OECD report. This government has set the right course for the British economy but we have so much more to do."

However Labour's Shadow Chancellor Ed Balls said he thought the OECD report was further evidence that government economic policy was on the wrong track.

"In the real world the evidence is mounting that his reckless plan to cut deeper and faster than any other major economy in the world isn't working," Mr Balls said.