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UK’s future trading arrangement with the EU and other partners will be critical to its economic prospects.
UK’s future trading arrangement with the EU and other partners will be critical to its economic prospects.

OECD Halves UK Growth Forecast

Uncertainty about UK’s future path of policy and the reaction of the economy remains very high and risks remain on the downside

OECD Halves UK Growth Forecast

A closely-watched forecast has slashed its prediction for UK economic growth next year by a full percentage point.
The Organization for Economic Cooperation and Development cited uncertainty following the UK’s Brexit vote and wider global growth woes for its assessment, Sky News reported.
It was released as a separate study by the Office for National Statistics suggested the referendum result had not had a major effect on the UK economy so far.
Its chief economist, Joe Grice, said: “The index of services published soon and the preliminary estimate of third quarter GDP, published at the end of October, will add significantly to the evidence.”
The OECD’s update to its growth projections had UK’s GDP rising by 1.8% in 2016—a slight improvement on its last forecast—but growth tumbling to 1% in 2017.
The multilateral economics institution had projected UK GDP growth next year of 2% in June, but reduced that to just 1% on Wednesday in its latest Economic Outlook.
That was easily the largest downgrade for any major advanced economy.

Global GDP Lowered
The wider report pointed to the world economy floundering this year to levels not seen since the financial crisis, with globalization grinding to a halt amid a slump in trade.
Trade growth—which had been driven by China for many years and had helped limit the impact of the crisis—was predicted by the OECD to lag GDP in the global economy.
The Paris-based organization downgraded global GDP expectations to 2.9% this year, down from an earlier forecast of 3%.
It marked the lowest rate of annual growth since the financial crash and could result in lower investment, productivity and wages, the OECD warned.
The scenario was largely a result of China’s efforts to wean its economy off exports towards a more consumer-led model and the knock-on effects on smaller, emerging market economies.
Future Uncertain
The OECD pointed to lost trade as being a major risk for the UK following the referendum.
The report said: “Uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside.
“In the longer term, the UK’s future trading arrangement with the EU and other partners will be critical to its economic prospects.
“Spillovers to the global economy, notably the eurozone, have been modest so far, including through confidence and financial markets weighing on investment; more negative effects on the eurozone are likely to become apparent in 2017.”
Responding to the report, Chancellor Philip Hammond said: “The underlying strength in the UK economy will support growth this year, and we have seen that in the labor market where employment is at a record high.
“The OECD highlights uncertainty in their outlook, and while I recognize that there may be some difficult times ahead, I am confident that we have the tools necessary to support the economy as we adjust to a new relationship with the EU and take advantage of the opportunities that it offers.”
Inferior Trade Deal
The EU leader preparing to chair Brexit negotiations said the UK is trapped “between a rock and a hard place” and will be offered an “inferior” trade deal.
Joseph Muscat, the prime minister of Malta, told Sky News on the sidelines of the UN General Assembly in New York that he had told Theresa May: “Most of my colleagues want a fair deal for both the UK and Europe, but I don’t see a situation where Britain will be better off at the end of the deal.”
Muscat’s comments are significant because Malta is set to hold the rotating EU presidency, meaning it will chair the initial Brexit negotiations if May triggers Article 50 early next year, as she has indicated.
Muscat expressed some exasperation at the lack of clarity from UK about its intent on Brexit.

 

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