Will Britain ever escape the low growth trap?

The Organisation for Economic Cooperation and Development’s (OECD) latest report, published this morning, downgrades Britain’s growth prospects this year: from 0.7 per cent (forecast in November last year) to 0.4 per cent. Based on the OECD’s Economic Outlook, Britain and Germany risk experiencing the least growth amongst advanced economies, with Germany coming last this year (with 0.2 per cent growth) and the UK coming last next year (with 1 per cent growth).

In response to this morning’s downgrade, Chancellor Jeremy Hunt has said that the ‘forecast is not particularly surprising given our priority for the last year has been to tackle inflation with higher interest rates’. This is a point made by the OECD as well: that the ‘waning drag from past monetary tightening’ has been keeping the lid on the UK’s ability to grow.

This, of course, was part of the plan: raising interest rates and taking heat out of the economy was necessary to tame inflation.