OECD warns of major economic downturn

The British economy is headed for a major down-swing that will see it grow even slower in 2009 than this year, the Organisation of Economic Co-operation and Development (OECD) has warned.

In its half-yearly outlook, the OECD predicted the economy would expand by 1.8% this year and drop to 1.4% in 2009 – the lowest since 1992 when a recession hit the country.

It also warned the credit crunch would continue to drive down house prices and inflation.

But it said the Bank of England should not provide interest rate relief because of inflationary pressures, the Guardian reported.

It said the Bank would need to cut interest rates to 4.25% in 2009 if house prices fell 10% as predicted.

The OECD said: “A significant down-swing is expected over coming quarters as both investment and consumer demand are damped by tight credit conditions and housing market weakness.”