OECD warning over rising unemployment

Bank of England Governor Sir Mervyn King
Bank of England Governor Sir Mervyn King

BRITAIN will be hit with rising unemployment next year as its economic recovery is held back by eurozone woes, spending cuts and the global slowdown, a respected thinktank warned yesterday.

The Organisation for Economic Co-operation and Development (OECD) said UK firms may put hiring on hold amid a subdued and uncertain recovery.

While it said the economy will shrink by a lower-than-feared 0.1 per cent this year – a marked improvement on the 0.7 per cent contraction it predicted in September – it said there were major headwinds facing the UK from the wider global economy.

In its half-yearly forecast, the Paris-based group said: “Although employment grew strongly in 2012, unemployment is expected to rise slightly in 2013, as the subdued recovery and continued uncertainty may make firms hesitant to hire.”

But it expects the UK economy to grow by 0.9 per cent in 2012, rising to 1.6 per cent in 2014.

“Growth is projected to recover gradually and gain momentum towards the end of 2013, as exports and household spending pick up as confidence recovers,” it said.

The OECD added Chancellor George Osborne should push back his debt reduction target if growth proves slower than expected.

It believes the Bank of England should continue with its economy-boosting quantitative easing (QE) programme, which is “providing significant support”, according to the group.

Its comments come amid mounting speculation over whether QE will be extended beyond £375bn following comments from Bank policymakers suggesting current conditions mean it is having little further impact.

In its global forecasts, the OECD said the world’s economic recovery will be “hesitant and uneven” next year and warned the risk of a deep recession cannot be ruled out.

The OECD said the 17-country eurozone is expected to struggle further in 2013 despite recent positive steps to stabilise the crisis.

It forecasts a 0.4 per cent contraction this year in the eurozone and a 0.1 per cent fall next year.

Elsewhere, the OECD is predicting the US economy will grow two per cent next year.

Growth across the OECD nations is expected to grow by 1.4 per cent this year and next.

Angel Gurria, secretary general of the OECD, said: “The world economy is far from being out of the woods.

“The US ‘fiscal cliff’, if it materialises, could tip an already weak economy into recession, while failure to solve the euro area crisis could lead to a major financial shock and global downturn.”

Bank of England governor Sir Mervyn King admitted policymakers should have cut growth forecasts sooner, telling MPs the Bank had “inadvertently given too much weight” to optimistic growth forecasts.

Discussing the Bank’s latest quarterly inflation report, Sir Mervyn said there was little chance of rapid growth in 2013 or 2014, adding it “may be unreasonable to expect anything other than a slow and protracted recovery”.

On the appointment of Bank of Canada governor Mark Carney as his successor, he told the Treasury Select Committee he was “completely confident” the central bank would be left in “very good hands”.

n Yesterday we carried a photograph of Paul Tucker, deputy governor of the Bank of England, wrongly captioned as Mark Carney, who was named as successor to Sir Mervyn King. We are happy to clarify the matter.