The Organisation for Economic Co-operation & Development has cut its growth forecast for the UK, and expects the economy to shrink by 0.7 per cent during 2012.
The OECD expects the UK to contract by 0.7 per cent in the third quarter before returning to growth of 0.2 per cent in the fourth quarter of the year.
It adds: “The forecast does not account for the likely bounce back in activity from Q2 to Q3 following the additional Diamond Jubilee bank holiday in June.
“The impact of the Olympics may also not be fully accounted for in these forecasts.”
The organisation had previously expected the UK economy to grow by 0.5 per cent.
The OECD highlighted slowing global growth, weakened trade and high, rising unemployment as having an impact on growth forecasts.
It also drew attention to spreading loss of confidence caused by the eurozone debt crisi
The US has had its growth forecast revised down from 2.4 per cent to 2.3 per cent. Germany is expected to grow by 0.8 per cent down from an earlier 1.2 per cent forecast. The French economy is expected to grow by 0.1 percent, revised down from 0.6 per cent.
The OECD claimed it was “critical” that the European Central Bank go ahead with bond market intervention, which would help bring a lasting crisis resolution.
It also called for banks to be strengthened, alongside the creation of a banking union and greater fiscal consolidation in Europe .
Risks to the OECD’s outlook include the impact of intensified eurozone instability further on global confidence, excessive fiscal contraction, continued disappointment in the labour market and further increases to high oil prices.