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The National Living Wage currently means a minimum £7.20 an hour is paid to workers aged 25 or over. Last week, Chancellor Philip Hammond said it would increase to £7.50 in April 2017.
The National Living Wage currently means a minimum £7.20 an hour is paid to workers aged 25 or over. Last week, Chancellor Philip Hammond said it would increase to £7.50 in April 2017.

OECD Says Brexit Still a Risk

Uncertainty could hamper domestic and foreign investment more than projected and the pass-through of currency depreciation to prices could be larger, deepening the extent of stagflation

OECD Says Brexit Still a Risk

Brexit is going to cause the British economy to slow less than originally thought, according to the Paris-based Organization for Economic Cooperation and Development.
The OECD revised up its UK growth forecasts to 2% from 1.8% this year, and to 1.2% from 1% in 2017, according to its November Economic Outlook. An inflation-induced pinch on consumer spending and lower investment are likely to drive the slowdown, it said, and those threats could prove more troublesome than expected, Bloomberg reported.
“The unpredictability of the exit process from the European Union is a major downside risk,” the organization said Monday. “Uncertainty could hamper domestic and foreign investment more than projected and the pass-through of currency depreciation to prices could be larger, deepening the extent of stagflation.”
While the forecasts assume the UK obtains “most favored nation” status under World Trade Organization rules after quitting the EU in 2019, they underscore the uncertainty surrounding the outcome of negotiations. The debate over the shape of Brexit gained further steam over the weekend, with Bank of England Governor Mark Carney reportedly telling bankers there should be a “buffer” period to give companies time to adjust to the UK leaving the bloc.
The BoE and OECD have been among the institutions criticized by pro-Brexit politicians for over-exaggerating the economic impact of the referendum. Even after revising up its growth outlook, the OECD is gloomier about next year than the central bank and the Office for Budget Responsibility, the independent fiscal watchdog that published forecasts last week.
The OECD forecasts the unemployment rate rising to 5% next year and to 5.6% in 2018. The depreciation in the exchange rate should help to boost exports and higher spending on labor market policies could enhance productivity, it said.

  Faster Inflation
The OECD predicts the economy will expand at a 1% pace in 2018, with inflation picking up to 2.4% in 2017 and almost 3% in 2018.
While price growth is expected to exceed the BoE’s 2% target, policy makers should maintain monetary stimulus to “ease the cost of economic adjustment to the departure” from the EU, it said. BoE officials have said that their tolerance to above-target inflation is “limited”.
Prime Minister Theresa May has pledged to start formal divorce talks by the end of March 2017, and there’s no clarity yet on exactly what form of trade relationship with the single market the government is attempting to pursue.
“Improved prospects of an orderly exit from the European Union while retaining strong trade linkages with the bloc would support near-term growth more than projected,” the OECD said.

  Wage Rise
The UK should reconsider planned increases in the National Living Wage with growth expected to slow in the wake of the Brexit vote, the OECD said.
It also backs the abolition of zero-rated VAT—covering items such as books and newspapers and children’s clothes—to try to make the tax system more efficient.
The OECD said that the Brexit vote “has reduced growth prospects and increased volatility”.
“With a weak economic outlook, further raises in the minimum wage should be considered prudently,” it said and added: “Caution is needed with the implementation of the policy to raise the National Living Wage to 60% of median hourly earnings by 2020.
“The effects on employment need to be carefully assessed before any further increases are adopted, especially as growth slows and labor markets weaken.”
The report also said that there is “room to make the tax system more efficient” and that removing low or zero-rated VAT “would also reduce distortions and in some cases make the system fairer”.
The National Living Wage currently means a minimum £7.20 ($8.93) an hour is paid to workers aged 25 or over. Last week, Chancellor Philip Hammond said it would increase to £7.50 in April 2017.
The National Living Wage was introduced by Hammond’s predecessor George Osborne and came into force in April, with a plan for it to rise to £9 by 2020.

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