Britain's fragile economy will remain close to stalling speed for the rest of the year, as the world slips perilously close to double-dip recession, according to a new forecast by Paris-based thinktank the Organisation of Economic Co-operation and Development.
The OECD's latest assessment of its member countries, which include the majority of the industrialised world, shows that the recovery is likely to remain weak, with the UK recording annual growth of just 0.3% in the final quarter.
The chancellor, George Osborne, welcomed OECD secretary general Angel Gurría to the Treasury earlier this year to give his imprimatur to the coalition's controversial budget cuts; but its latest forecast shows the UK barely escaping recession.
Alan Clarke, UK economist at Scotia Capital, described the forecast as "grim", pointing out that it amounts to quarterly GDP growth — the way the health of the economy is usually measured by the government — of zero to 0.1% in both of the last two quarters of the year.
He said this was particularly worrying, given that the OECD usually presents a more upbeat forecast. "This is likely to reinforce pessimism if the usually pretty conservative OECD is now more pessimistic than the most pessimistic amongst us."
The OECD sees the gloom spreading right across the world's major economies, with the US expected to record annual growth of just 0.4% in the fourth quarter, Germany -1.4% and Japan zero.
"The risk of more negative growth has become higher in some major OECD economies," it warns, though it does offer the reassuring caveat that, "a downturn of the magnitude of 2008/9 is not foreseen."
The OECD's economists called for central banks to keep on supporting growth, by unconventional means if necessary. "Policy rates in most OECD economies should be kept on hold. If in the coming months signs emerge of the weakness enduring or the economy risks relapsing in recession, rates should be lowered where there is scope," the report says. "Where there is not such scope, other measures could include further central bank interventions in securities markets (even if at diminishing returns) and strong commitments to keep interest rates low over an extended period."
The OECD's economists warned that there was unusually high uncertainty about the economic outlook, and identified a series of risks, including a worsening of the eurozone debt crisis, a "further tightening of financial conditions," and the impact of large budget cuts in the US. "Stronger fiscal consolidation may have been exerting more drag on activity than expected."
That sends a clear message of support to US Federal Reserve chairman Ben Bernanke, who has extended September's policy meeting to two days, apparently in a bid to convince his colleagues to take fresh action to boost the flagging US economy.
The Bank of England held interest rates at 0.5% on Thursday. Some City analysts expect US economist Adam Posen to have gathered more support for his bid to restart quantitative easing.
In the eurozone, where there have been two interest rate rises since the start of the year, ECB Jean-Claude Trichet will give his assessment of policy after its regular meeting later on Thursday, though borrowing costs are expected to remain unchanged at 1.5%.