Rising household debt and flatlining wages are becoming a major financial stability risk as Britain slows as a consequence of Brexit, the Organisation for Economic Co-operation and Development has said.

The warning from the Paris-based thinktank on Tuesday came as it argued Brexit uncertainty will result in Britain missing an upswing in global growth next year. The OECD forecasts UK growth will be the slowest among G7 nations next year, down from 1.5% this year to 1.2% in 2018 and 1.1% in 2019, when only Japan will grow at a slower rate.

The OECD warned that personal loans such as credit cards were at greater risk of default than mortgages if economic conditions worsened, as it called for tougher affordability checks to be introduced to stop banks from running into trouble. However, the Bank of England on Tuesday said Britain’s biggest high street banks could withstand the economic consequences of a disorderly brexit.

In its latest assessment of the global economy, the OECD found job creation in the UK was losing momentum, while consumer spending would remain subdued as higher inflation, pushed up by the depreciation of sterling after the Brexit vote, continued to hold back household purchasing power. While a weaker pound should help to increase exports, import growth is projected to fall as a consequence of weaker private consumption, it added.

“The major risk for the economy is the uncertainty surrounding the exit process from the European Union, which could hold back private spending more than projected,” its report found, adding that the prospect of maintaining the “closest possible economic relationship” with the EU would lead to stronger-than-expected growth.



The gloomy outlook comes a week after Philip Hammond delivered the sharpest downgrade in economic growth at a budget since the Conservatives came to power in 2010. Faced with evidence showing the UK will be one of the weakest-growing major economies in the next five years, the chancellor placed a stamp duty cut for first-time buyers at the heart of his tax and spending package.

The government also published its industrial strategy white paper this week in an effort to improve the UK’s sputtering record on productivity growth, which has held back economic growth and pay since the financial crisis.

Q&A What is productivity and why does it matter? Show Productivity is an economic measure of the efficiency of a workforce. It typically measures the level of output per hour of work, or per worker. A more productive workforce signals stronger growth and healthier public finances. Productivity gains are vital to economic prosperity because it signals that more is being achieved by workers in less time. Gains are typically achieved through advances in technology and increased skill levels within a workforce. In the UK, productivity growth has stalled since the financial crisis, putting it behind international rivals. The UK ranks fifth out of G7 leading industrial nations, with Canada and Japan having weaker levels of productivity. Germany is the most productive nation per hour, while the US is top for output per worker. Weak productivity is problematic because it signals weaker economic growth, therefore eroding the public finances. Without an improvement in productivity, economies miss out on increases in wages and living standards, putting further pressure on the welfare system and depressing tax receipts. Some industries are more productive than others. In the UK, manufacturing firms are among the most efficient, whereas the services sector operate at below average productivity. Photograph: Bloomberg

Meanwhile, the OECD forecasts that global growth will reach 3.6% this year, up from a previous forecast of 3.5%, led by India, China and a recovery in the euro area, before accelerating to 3.7% in 2018. It said a modest fallback in global growth would come in 2019, back to this year’s levels, as longer-term challenges inhibit stronger, more inclusive and resilient economies.

José Angel Gurría, the OECD general secretary, said: “Growth has picked up momentum and the short-term outlook is positive, but there are still clear weaknesses and vulnerabilities.

“There is a need to focus structural and fiscal action on boosting long-term potential as monetary policy support is reduced. Countries should implement reform packages that catalyse the private sector to promote productivity, higher wages and more inclusive growth.”

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