Following last weeks news that the UK had fallen back into recession, the Chancellor, George Osborne said: “The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt.”
However, it looks as though, despite previously backing the Chancellor’s austerity plans, the OECD’s opinion differs, with the think-tank saying that George Osborne could let the debt-reduction target slip a year without suffering a backlash in band markets.
The acting head of the OECD’s UK desk, Christophe Andre has said that the UK government could respond to the double dip by “letting the automatic stabilisers play and doing a little more infrastructure investment – partly financed by other measures such as changes to VAT and a bit more borrowing.”
Mr Andre also said: “I don’t think the markets would react adversely if the deficit kept on track on a cyclically-adjusted basis but debt came down a year later than planned” adding that he was talking about something small, up to about half a percent of GDP, which would equate to about £7.5 billion more borrowing.
The latest comments from the OECD is not the first time that the think-tank has suggested the Chancellor loosen the purse-strings; with similar calls coming in May last year.
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