Don't Get Your Hopes Up Over The Recovery Yet, OECD Warns

One of the world's most important international financial institutions, The Organisation for Economic Cooperation and Development has predicted a minimal increase in GDP for the coming year, decreasing its prediction from 1.7 per cent to 1.5.

They said that the UK will increase in growth by around 2%, which is almost half of that predicted for other strong countries in the European Union. This shows just how slowly our economy is recovery in relation to our close countries.

The UK's own figures, however, predict a higher rate of economic growth and are more optimistic than the OECD figures. The Office for Budget Responsibility estimates that GDP will grow by 2.1 per cent in 2011, a third higher than that predicted by the OECD.

The OECD stated in a report that although the UK economy began its recovery in 2009, 2011 will be a much more difficult year. They believe that the monetary policy committee can help this situation by handling interest rates accordingly and compassionately. If the Bank of England make the right decisions, which won't be easy, then the economy may begin to recover again at the kind of rate that we need in order for our country's financial system and markets to get back on track.

The OECD have made it quite clear that the situation lies in the hands and on the shoulders of our government, and that only they can currently save the country from falling into another financial crisis by controlling interest rates and encouraging spending.

Curently the Monetary Policy Committee of the Bank of England has voted against a rise in interest rates but Mervyn King, the bank's governor, has strongl hinted that a rise in rates this year is laregely unavoidable.

One of the largest contributing factor to the state of the UK economy in recent years has been the increase in the price of commodities due to the growth in China, which has put pressure on UK business.

So the Bank of England and the Treasury are stuck between a rock and a hard place, whatever course they take will cause pain. Interest rates go up; people have less money to spend as mortgage payments increase. So the Bank of England and Treasury are targeting the money supply as the best course of action, reduce the amount of money available, spending slows and inflation should slow. Its short term pain for long term gain is the explanation coming from Whitehall and Threadneedle Street.

However, rising commodity costs and other inflationary factors seem to be responsible for the current economic position. The Bank of England has very little control over these factors and so using interest rates to control inflation may actually have little impact.

Consequently, the economy in the UK may remain quite weak over the next year. The OECD has a bleak outlook for GDP growth and, if interest rates were to rise, economic growth could even be worse than the OECD's reduced forecast.


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Timothy Frodsham writes for Just Commercial Mortgages the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.