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Osborne warned over pace of cuts

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The government’s drastic deficit-reduction plans may have to be slowed if growth figures continue to disappoint, an influential economic thinktank warned.

Pier Carlo Padoan, chief economist of the Organisation for Economic Co-operation and Development (OECD) said there was “scope for slowing the pace”.

He delivered his verdict in The Times after the OECD cut its UK growth forecast for the second time this year.

“We see merit in slowing the pace of fiscal consolidation if there is not so good news on the growth front,” he said.

“We have seen that (growth numbers) are a bit weaker than expected. Should that continue to be the case, there is scope for slowing the pace.”

The OECD now predicts GDP will grow at 1.4% in 2011, downgraded from the 1.5% it forecast in March and the 1.7% it had previously estimated.

It now says the UK economy will grow by 1.8% next year, instead of 2%.

Interest rates, at a record low of 0.5% for more than two years, will need to start rising in 2011 to stave off high inflation, it added.

Its forecasts are significantly lower than those of government financial watchdog the Office for Budget Responsibility which predicts growth of 1.7% this year and 2.5%for 2012.

In March, chancellor George Osborne cited the verdict of the OECD in defence of tough measures in the Budget which it said were “unavoidable in the short term” to put the UK on the route to a strong recovery.

Shadow chancellor Ed Balls said: “This is a very significant intervention.

“Even the OECD, which has traditionally supported government economic policy and George Osborne’s deficit reduction plan, is now saying the chancellor should consider changing course.”

A Treasury spokeswoman said: “The OECD has endorsed the government’s economic strategy, saying that the deficit reduction plan ‘strikes the right balance and should continue’.

“The chancellor has been clear that the recovery is likely to be choppy given the scale of the imbalances and depth of the recession. The Budget set out a plan for growth, to help support recovery and rebalance the economy.”

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