The UK's economy will slip back into recession in the coming months, a bleak forecast from the OECD has revealed.
The economic think-tank said the UK's GDP will shrink in the final quarter of 2011 and the first quarter of 2012 — the first time it has predicted a double-dip recession for the UK.
It believes the UK's faltering economy will grow by just 0.5% in 2012, down from its previous estimate of 1.8% in May, as it is hit by weak demand for exports, the Government's austerity measures and the squeeze in consumer spending.
The OECD also said unemployment, which currently stands at 8.3% — its highest since 1996 — will rise to 9% in 2013 as jobs figures take a worse hit than in the recession following the banking crisis.
It said more economy-boosting quantitative easing measures from the Bank of England are “warranted”, adding that it expects the stock of asset purchases to rise to £400bn early next year from £275bn currently.
The OECD said the slump will be modest compared with previous recessions and the economy is set to start recovering after two quarters of decline. It expects GDP growth of 1.8% in 2013.
But it also warned that there are downside risks to its forecasts and the downturn could turn out to be deeper than projected, as the eurozone debt crisis has the potential to hit the banking sector and weaken confidence.
It warned that it may become necessary to pump more money into banks to help shore up the financial system.
While it would be “preferable” for banks to raise the money from private investors, it warned that the Government needs to be prepared to step in.