OECD Urges UK To Cut Spending Or Raise Taxes

by Jason Gorringe, for LawAndTax-News.com, London

14 May 2004

In its semi-annual economic survey of the United Kingdom, released on Tuesday, the Organisation for Economic Cooperation and Development (OECD) suggested that the UK economy will grow strongly in 2004, but that Chancellor Gordon Brown may need to take decisive action in order to avoid breaking his 'golden rule', which stipulates that the government should only borrow for investment over the economic cycle.

Predicting GDP growth of 3.1% this year, falling to 2.7% in 2005, the OECD observed that:

"The government deficit exceeded 3 per cent of GDP in 2003, and a slowdown in spending or a rise in taxation may be required to ensure that the “golden rule” can be comfortably met over the next cycle."

It also urged the Bank of England to continue raising interest rates, arguing that:

"A continuation of the recent gradual tightening of monetary policy should ensure that growth declines towards the trend rate by the end of 2005 and that inflation will not overshoot the 2 per cent target."

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