Chancellor George Osborne today blamed negative international factors for the slowdown in the British economy, as a respected global think-tank predicted UK growth will stutter to a near-halt over the coming months.
The Organisation for Economic Co-Operation and Development (OECD) forecast annualised growth of just 0.3% for the UK in the final quarter of 2011, in a report which painted a gloomy picture of prospects for most of the world's biggest economies.
If it turns out to be correct, the OECD's forecast would complete a steep decline in annualised growth from 2.5% in the third quarter of 2010 to 0.7% in the second quarter of 2011, 0.4% between July and September and 0.3% in the last three months of this year.
In a mark of continuing concern over the sluggish recovery, the Bank of England's Monetary Policy Committee again held interestrates at a record low of 0.5% today, though the bank held off from printing more money to stimulate the economy through "quantitative easing".
Shadow chancellor Ed Balls called on Mr Osborne to ease up on austerity measures in the hope of bolstering fragile demand and said the Chancellor should use this weekend's meeting of G7finance ministers in France to seek agreement on a global plan for growth.
But Mr Osborne said that the argument that slower-than-expected growth was caused by the Government's deficit reduction programme was "for the birds".
Instead, he said that countries throughout the world were being affected by factors beyond Britain's control, such as high oil prices, the sovereign debt crisis in the eurozone and concerns about growth in the US.
"The forecasts we got from the OECD today show that this is a problem for many advanced economies. There was a revision down in their forecast for growth for virtually every developed economy," said the Chancellor.
"We can look at the various short-term problems... but actually the real issue here is the long-term one, which is the big overhang of public and private debt from a decade-long boom that went unchecked.
"Unfortunately, the recovery from this is slower and takes longer than recoveries from previous recessions.
"I think Britain has put in place the right policy mix."
The OECD interim economic assessment is designed to check if projections made in its last economic forecast are on track. In May, the body downgraded its estimate for UK GDP growth in 2011 to 1.4% and 1.5% for 2012.
While OECD chief economist Pier Carlo Padoan encouraged governments to continue with fiscal tightening, he encouraged them to ease up when possible.
Mr Padoan admitted world economic growth was turning out to be much slower than the body thought it would be three months ago.
He said: "There's a clear drop in confidence in both business and households which reflects what they see as lack of policy response from governments."
The OECD recommended that central banks keep policy rates at present levels and, barring signs of recovery, consider lowering rates when there is scope.
World trade stagnated in the second quarter, according to the assessment, partly due to supply disruptions in the fallout of the earthquake and tsunami in Japan.
There is a risk of high unemployment becoming entrenched, the think-tank warned, and governments should roll out policies to create jobs.
Looking ahead, growth levels are muted across the G7 nations, with Germany forecast to experience a 1.4% decline in GDP in the fourth quarter.
The dismal outlook for Germany is significant as the country was until recently leading the recovery in Europe with strong levels of GDP growth.
But figures suggest the country's economy is losing steam as GDP growth in the second quarter dropped to 0.2% on a quarterly basis.
A healthy UK economic recovery is dependent on the rest of the continent as Europe is the country's biggest trading partner.
Mr Balls said: "A year ago, while the Chancellor was saying he was cautiously optimistic and Britain was out of the danger zone, I warned that there was a hurricane building and this was not the right time to rip out the foundations of the house.
"And I am even more worried now about Europe, America and Britain than last summer.
"This is now a critical moment for the world economy. We urgently need some leadership from our Chancellor and the G7 meeting this weekend to agree a global plan for growth and more balanced plans to get deficits down in the medium term."
TUC general secretary Brendan Barber said: "It looks like the best we can hope for is bumping along the bottom for years to come.
"Spending cuts are choking off recovery. The UK, US and Europe must embrace policies for investment and growth rather than hoping someone else will."
Well, China will be the world biggest economy very soon! I'm wondering why didn't it happen earlier
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