OECD warning over UK debts
Jun 25 2009 by Graeme Brown, Birmingham Post
Experts have predicted the UK will sink further into the red than any other major developed country next year.
The fiscal deficit is expected to rise to 14 per cent of economic output in 2010, compared to an average of 8.75 per cent in the 30 most developed markets, according to a report by the Organisation for Economic Co-operation and Development (OECD).
The OECD warned that “public finances have deteriorated sharply” since the beginning of the recession and called on the UK to continue to develop “a strong and credible” framework for reducing the ratio of debt to output.
“To improve stability, the Government should continue to develop a concrete and comprehensive plan to ensure that debt is on a declining path once recovery takes hold,” the OECD said.
The OECD said the state of the UK’s balance sheet meant the possibility of extra stimulus to the economy was curtailed. The report said Ireland, the US and Spain are all expected to have fiscal deficits above the average figure next year.
It also said the UK economy was likely to recover “only mildly” in 2010, with any return to health dependent on an upturn in the housing market and credit availability.
The report said the downturn in economic activity had pushed up unemployment and reduced wage growth inflation. It said the number of people out of work in the UK is expected to grow to 9.7 per cent in 2010, double that seen just five years before, although this is still lower than other countries. Spain is set to see the worst level of unemployment, at 19.6 per cent, while the US level is predicted to rise to 10.1 per cent.
The OECD predicted that the UK economy would contract by 4.3 per cent this year, worse than the Government’s predictions of a 3.5 per cent fall in output and more pessimistic than its March report.
The glum forecast had an impact on the OECD’s fiscal deficit expectations of 12.8 per cent for the country in 2009.
In his Budget speech, Chancellor Alistair Darling said the budget deficit would amount to 12.4 per cent of output in this financial year, falling to 11.9 per cent next.
Recent official figures showed UK overall net debt stands at a mammoth £774.8 billion, about 54.7 per cent – the biggest proportion for more than 30 years.
Liam Byrne, chief secretary to the Treasury, said: “Britain had the space to fight back hard against the global downturn because we had lower debt than most G7 countries before the crisis broke. If we invest now we can stop the recession cutting long and deep.”
Shadow chancellor George Osborne said: “The OECD figures show just how deep Labour’s debt crisis is and reinforces the warnings on debt we Conservatives have been making all through this crisis, and which Gordon Brown is still in denial about.”
