In its latest survey of the UK economy the Organisation for Economic Cooperation and Development (OECD) argues that the time-path followed by the country in reducing its fiscal imbalances should make allowance for a temporarily slower pace of economic growth if necessary.

The Paris based observer specifically states that "The report argues that monetary policy is a key tool to stimulate the economy in the short term, while the government's fiscal plan, hard won credibility on the financial markets, and strong institutions allow it the flexibility to adapt to weaker than expected growth.

"It is appropriate to allow the deficit to shrink more slowly than initially planned to cushion the shock and help households through any downturn," the OECD states.

Similarly, it adds that "additional tax increases or spending cuts - beyond those already planned - should not be imposed to compensate for a temporary slowdown."

As regards the role of monetary policy, the OECD goes on to say that "overall, in the current economic situation, further expansion of the asset purchase programme would be warranted if the economy stays weak."

At the current juncture the multilateral organisation does not see a need to employ other monetary policy options, such as cutting the policy rate to close to zero and buying private securities as a part of QE.

For the current year the research body forecasts UK gross domestic product to grow at a 0.9% rate followed by an expansion of 1.6% in 2014.

AB

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