UK economy: OECD downgrades 2017 GDP forecast by 1%

A closely-watched forecast has slashed its prediction for UK economic growth next year by a full percentage point.

The Organisation for Economic Cooperation and Development (OECD) cited uncertainty following the UK's Brexit vote and wider global growth woes for its assessment.

It was released as a separate study by the Office for National Statistics suggested the referendum result had not had a major effect on the UK economy so far.

Its chief economist, Joe Grice, said: "The index of services published soon and the preliminary estimate of third quarter GDP, published at the end of October, will add significantly to the evidence."

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Meanwhile a survey of businesses by the Bank of England found investment and employment were likely to be flat over the coming year as a result of the referendum.

The OECD's update to its growth projections had UK GDP rising by 1.8% in 2016 - a slight improvement on its last forecast - but growth tumbling to 1% in 2017.

The wider report pointed to the world economy floundering this year to levels not seen since the financial crisis, with globalisation grinding to a halt amid a slump in trade.

Trade growth - which had been driven by China for many years and had helped limit the impact of the crisis - was predicted by the OECD to lag GDP in the global economy.

The Paris-based organisation downgraded global GDP expectations to 2.9% this year, down from an earlier forecast of 3%.

It marked the lowest rate of annual growth since the financial crash and could result in lower investment, productivity and wages, the OECD warned.

The scenario was largely a result of China's efforts to wean its economy off exports towards a more consumer-led model and the knock-on effects on smaller, emerging market economies.

The OECD pointed to lost trade as being a major risk for the UK following the referendum.

The report said: "Uncertainty about the future path of policy and the reaction of the economy remains very high and risks remain to the downside.

"In the longer term, the UK's future trading arrangement with the EU and other partners will be critical to its economic prospects.

"Spillovers to the global economy, notably the euro area, have been modest so far, including through confidence and financial markets weighing on investment; more negative effects on the euro area are likely to become apparent in 2017."

Responding to the report, Chancellor Philip Hammond said: "The underlying strength in the UK economy will support growth this year, and we have seen that in the labour market where employment is at a record high.

"The OECD highlights uncertainty in their outlook, and while I recognise that there may be some difficult times ahead, I am confident that we have the tools necessary to support the economy as we adjust to a new relationship with the EU and take advantage of the opportunities that it offers."