Developing

OECD Predicts Britain's Return To Recession

Britain is facing a mild recession in the first half of next year, but the government should not deviate from plans to cut the UK's budget deficit, the Organisation for Economic Cooperation and Development has said.

In its biannual report on the economic outlook of its 34 members, the international economic research group (OECD) said weak international demand and fiscal consolidation has halted the recovery in the UK.

But speaking to Sky's Jeff Randall, the OECD's chief economist Pier Carlo Padoan said that government austerity measures were a necessary price to pay to maintain the UK's economic credibility on the international markets.

"His (the Chancellor's) Plan A is working.

"The Government has done a lot of hard work to maintain fiscal credibility."

The OECD expects the downturn to be 'modest', with 0.03% decline in output for the current quarter of this year and 0.15% contraction in the first quarter of 2012.

It also said the Bank of England should expand its quantitative easing programme to £400bn - effectively pumping a further £125bn into the economy by buying government bonds - to support growth.

Mr Padoan added: "QE can provide additional support at times when other instruments, most notably fiscal policy, are short of ammunition."

The Paris-based group highlighted that unemployment could reach 9% by 2013, but that inflation would fall below the 2% target.

Globally the OECD also said outlook has also worsened since its last report and that the euro area, which is one of the UK's major trading partners, is also facing a mild recession.

But in a far more gloomy that a split in the single-currency area would result in massive wealth destruction, bankruptcies and a collapse in confidence in the region, as well as a deep depression in the world economy.

The economic report comes on the eve of George Osborne's Autumn Statement, in which he is expected to reveal raft of measures including a £30bn infrastructure plan .

The Chancellor told Sky News that it was clear from the OECD report that "these are very difficult times for many countries in the western world" and that the deep downturn in Europe would be a challenge for Britain.

"We've got to weather the current economic storm but we've got to lay the foundation for a stronger economic future, " he added.

Meanwhile, the Shadow Chancellor Ed Balls said: "This out of touch Government needs to realise that a flatlining economy and more people out of work claiming benefits make it harder to get the deficit down.

"And we will find out tomorrow just how much extra borrowing than planned a year ago David Cameron and George Osborne's failed plan is costing the country.

"It cannot be right to borrow tens of billions of pounds to keep people on the dole, when we could be investing to get people back to work with Labour's five point plan for jobs."

The government's independent Office For Budget Responsibility will publish its UK economic forecasts following the Chancellor's Autumn Statement.