Britain stuck in slow lane of expansion


The global economy is picking up but Britain is stuck in the slow lane, the Organisation for Economic Cooperation and Development said yesterday.

Newcastle Brown Ale Factory

Recovery: Economists reckon the economy rebounded last month and a double dip will be avoided

Germany and the US are leading the charge with 'robust expansion' as industrialised countries bounce back from the financial crisis and recession, according to the Paris-based group.

Japan is also set to grow strongly despite the economy shrinking by 0.3% in the final three months of 2010. But Britain, Canada and France are achieving only 'moderate expansion' while there are 'signs of a downturn emerging' in Italy.

Among the Bric economies, China and India are heading for a slowdown having enjoyed breakneck growth last year while Brazil and Russia continue to expand at pace.

The report came as China leapfrogged Japan to become the second biggest economy in the world behind the US. The booming Chinese economy was worth £3.7 trillion at the end of 2010 while Japan's totalled £3.4 trillion. It is on course to overtake the US in 10 years.

The OECD is predicting global growth of 4.2% this year, down from 4.6% in 2010. The US is expected to grow by 2.6%, the eurozone by 1.7% and the UK by 1.3%. This will be dwarfed by growth of close to 10% in China.

Howard Archer, chief UK economist at IHS Global Insight, said that although the recovery in Britain was subdued, there will be no double-dip recession.

The economy shrank by 0.5% in the final three months of last year as the freezing weather took its toll. But analysts reckon it rebounded strongly last month and is on course to grow by 0.8% in the first quarter of 2011, according to Archer.

He said the OECD report suggested that the 'modest economic upturn remains intact'.

The Bank of England is under mounting pressure to raise interest rates from the historic low of 0.5% to put a lid on surging prices.

Official figures are today likely to show that inflation hit 4% in January - double the 2% target. But 'doves' at the Bank - including governor Mervyn King - are reluctant to raise rates for fear of derailing the economic recovery.

Business secretary Vince Cable waded into the row last night, saying now is not the time to raise rates.

'As an outsider looking in, I take the view of the doves,' Cable told Bloomberg Television. 'Although you have inflation, it's almost entirely imported.

'There's not very much evidence of British inflation taking place. It's virtually deflation.'