OECD warns UK outlook more ‘uncertain’

The Bank of England should be poised to cut interest rates because of the risk of lower economic growth and a housing slowdown in the wake of recent financial market turmoil, the Organisation for Economic Co-Operation and Development said in a report on Thursday.

“The outlook for both growth and inflation has now become more uncertain and there is a risk that growth will be weaker going forward, which could imply a need for interest rate reductions,” said the Paris-based organisation.

It noted that earnings growth in the UK had moderated partly because of strong inward migration which had helped to fill skill shortages.

In May the OECD said the Bank needed to be vigilant to the need to raise rates if wage settlements picked up. It forecast UK economic growth of 2.7 per cent in 2007, falling to 2.5 per cent next year.

However, on Thursday it said lower growth and reduced profitability in London’s financial district due to the credit squeeze, were likely to lower the government’s tax take and lead to a rise in the budget deficit, which it said was “still high by international comparison.”

But the bank failed to give new forecasts for the UK economy in Thursday’s report.