The OECD has just published its latest Economic Survey of the United Kingdom. According to the report Britain must continue to pursue pro-growth, as well as inequality reducing structural reforms in order to recover from the nation’s deepest recession in nearly a century.
The effects of the global financial crisis, turbulence from the euro area, and weak domestic demand risk are prolonging the downturn. This could reduce the country’s long-term growth potential and add to social pressures.
The report argues that monetary policy is a key tool to stimulate the economy in the short term, while the government’s fiscal plan, hard won credibility on the financial markets, and strong institutions allow it the flexibility to adapt to weaker than expected growth. It is appropriate to allow the deficit to shrink more slowly than initially planned to cushion the shock and help households through any downturn. Additional tax increases or spending cuts – beyond those already planned – should not be imposed to compensate for a temporary slowdown, the Survey says.
But medium-term fiscal consolidation continues to be essential, it adds. The government’s plan has achieved a significant reduction of the public deficit, despite difficult economic conditions, but it is still over 8% of GDP (excluding one-offs), while the government debt–to-GDP ratio is above 80%.
The Survey outlines what needs to be done to combat inequality by raising the number and quality of jobs, investing in people’s skills and strengthening the welfare system. Among the recommendations are measures to tackle skill shortages, ease the transition from education to the job market and increase incentives to move off benefits and into work.
The whole report is available for the IESE Community here.