"The UK economy is likely to fall into recession this year, according
to the Organisation for Economic Cooperation and Development (OECD).

The Paris-based think tank predicts that the UK economy will shrink at
an annual rate of 0.3%% in the third quarter, and by 0.4%% in the
fourth.

According to the latest official figures, the UK economy did not grow
at all in the second quarter of 2008.

The working definition of a recession is two quarters of negative
growth.

The gloomy outlook for the UK economy has pushed the pound sterling to
its lowest level for two years against the euro.

Responding to the OECD figures, Chancellor Alistair Darling said many
leading economies were suffering from slowing growth and the UK could
"get through" a difficult period with the right policies.

Dark clouds?

The OECD forecast is the gloomiest yet for the UK economy by an
official organisation, even gloomier than the forecast released by the
International Monetary Fund (IMF) one month ago.

In its latest report, the OECD says that the UK economy will grow by
just 1.2%% for the whole of 2008, a sharp reduction in its earlier
forecast of 1.8%% made just two months ago, and less than the 1.4%%
predicted by the IMF.

The OECD's figure is less than half the official Treasury forecast of
2.5%%, although the Chancellor has recently indicated that this was
likely to be revised downwards as the UK was facing "the worst
economic conditions in 60 years".

The think tank is also gloomy about growth prospects in the rest of
Europe, and says the region's three other largest economies - Germany,
France, and Italy - will barely grow at all this year.

It points out that "financial market turmoil, housing market
downturns, and high commodity prices continue to bear down on global
growth".

The OECD adds that the particular circumstances of the credit crunch
make for "a particularly unclear picture".

George Osborne on the government's plans to boost the housing market
The shadow Chancellor, George Osborne, said:

"This is more gloomy news, coming on the back of the Chancellor's
warning that the economy is facing the worst crisis in sixty years.

"The depressing thing is that at the very moment when Britain needs a
strong and united leadership, we have a weak and dysfunctional
government."

Exports hit

The sharp revision of the growth forecast for the eurozone, with the
German economy not growing at all in the next two quarters, will have
consequences for the UK.

The eurozone is Britain's largest trading partner, taking 50%% of
British exports. With growth slowing, even with a devalued pound,
there is unlikely to be strong demand in the export sector, analysts
say.

According to the OECD, the US economy may grow slightly more strongly
than it had previously expected, but "uncertainty as to the extent of
weakness hinges importantly on how rapidly the effects of the
temporary fiscal stimulus will fade".

In July, the US Treasury paid out $168bn in tax rebates to help boost
the US economy.

The OECD adds that in view of the weak outlook for the future, the US
central bank, the Federal Reserve, is right to keep interest rates low
at 2%%.

Gloomy outlook

The OECD sees the still-unfolding downturn in the housing market as
the biggest problem facing Western economies.

It says that reduced credit supply is adding to the problem, with
house prices still falling in the US, and downturns in housing market
activity spreading in Europe from Spain, Ireland and the UK to other
countries.

It adds that "potential further losses on housing and construction
finance" are also a source of concern for the financial sector,
especially as the "depth and extent of financial disruption is still
uncertain".

The OECD also warns that "sharp increases in energy and food prices
have boosted headline inflation and sapped real incomes of
consumers".

However, it sees some reason for optimism on inflation, and says that
if commodity prices are sustained at their current levels and do not
rise to record levels again then "some moderation of both headline and
underlying inflation is to be expected".

And if this happens, it suggests that there might be scope for the
European Central Bank, which has recently raised interest rates, to
cut them to boost the eurozone economy.

Given rising government budget deficits, it argues that monetary
rather than fiscal policy should be used to boost the economy."

http://news.bbc.co.uk/2/hi/business/7592660.stm