The Bank of England should be in no hurry to raise interest rates, given the ongoing risks of a Brexit-induced downturn, the OECD warned on Tuesday.
In its latest economic outlook, the Paris-based organisation predicts UK output growth of just 1.2 per cent this year and 1 per cent in 2020, in line with the official forecast for 2019 of the UK Office for Budget Responsibility, but more pessimistic on the chances of growth picking up in the year ahead.
The OECD said growth would remain below trend in both years with Brexit-related uncertainty holding back business investment and growth in consumption slowing along with employment.
“With inflation close to target but with large uncertainties remaining, the policy interest rate should be kept constant until there are clear signs of accelerating prices,” the OECD said, adding that if Brexit led trade and production to shift, the government should “seek to support workers, not particular sectors or jobs”.
The forecasts assume a smooth Brexit. The OECD said it viewed a disruptive, no deal Brexit as a tail risk, but that political uncertainty could damp growth more strongly or for longer than expected.