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OECD forecasts British economic growth to weaken in next two years

Xinhua,November 29, 2017 Adjust font size:

LONDON, Nov. 28 (Xinhua) -- The British economic growth is forecast to weaken over the next two years, the Organization for Economic Cooperation and Development (OECD) has said.

The growth of Britain's gross domestic product (GDP) will fall to 1.2 percent in 2018 and 1.1 percent in 2019, down from this year's 1.5 percent, the OECD said in its economic outlook report published on Tuesday.

The economic uncertainties over Brexit was the principal factor in subdued British growth and Brexit weighs on economic prospects in Germany, Spain, the Netherlands, Ireland, Latvia and South Africa, the report said.

Private consumption is projected to remain subdued as higher inflation, pushed up by the past depreciation of sterling, holds back household purchasing power, it added.

Brexit weighs down on wage growth as it has pushed Consumer Price Inflation (CPI) above annual wage increases, according to the OECD,

British CPI stands at 3 percent, and forecasters say it has either peaked or is about to. This marks a considerable rise on the 0.5-percent rate seen just before the Brexit vote in June last year, and has been driven in large part by the large fall in sterling as the market's immediate response to the vote and its implications.

British wage growth rate is currently 2.1 percent, according to figures of the Office of National Statistics (ONS), meaning that household spending, a significant driver of economic growth, is under pressure.

"We project a slowing in household consumption growth, reflecting weak real wage growth. Weak aggregate demand and heightened uncertainty will negatively impact investment, which will subtract from growth in 2018 and 2019," OECD economist Mark Baker said Tuesday.

The OECD supports the view of other bodies such as the central bank, the Bank of England (BoE), which forecast that inflation is close to peaking, but the OECD differs from the BoE by forecasting a rise in unemployment, Baker added.

The unemployment rate is at a low of 4.3 percent not seen for more than 40 years, but with slower growth this is unlikely to persist, the report said.

"We project a moderate rise in the unemployment rate over the projection period, and we also project a gradual decline in inflation as the temporary impact from past currency depreciation diminishes," Baker said.

The BoE has indicated that the course of monetary policy in the coming years would take a "gradual pace and be to a limited extent" building on the 0.25-percent rise this month to take it to 0.5 percent.

Baker said the OECD recommended a direction of policy that continued to be loose. Enditem