Osborne upbeat despite growth fears

George Osborne has insisted there are "positive signs" in the UK economy despite a think-tank drastically downgrading its growth forecast for Britain.

The Organisation for Economic Co-operation and Development (OECD) predicted a 0.7% fall this year, having previously expected a rise of 0.5%, and said the country will fail to pull out of its double-dip recession in the current quarter.

Despite the gloomy forecast, the Chancellor maintained that the economy was healing and insisted the Government will not change course on its economic programme in the face of Labour demands for action to stimulate growth.

His comments came after the European Central Bank (ECB) unveiled details of a new bond-buying plan aimed at easing the eurozone's debt crisis.

Mr Osborne told a CBI Scotland dinner in Glasgow: "The economic outlook remains uncertain but there are some positive signs. Our economy is healing - jobs are being created, manufacturing and exports have grown as a share of our economy, our trade with the emerging world is soaring, inflation is down, much of the necessary deleveraging in our banking system has been achieved, and the world is once again investing in Britain."

The senior Tory said that nobody was offering "a credible or convincing alternative economic strategy". He added: "We in Britain have to confront our problems head on, be honest about the scale of the challenge, and be consistent in our determination to succeed."

Mr Osborne's address followed news that the ECB is to buy up government bonds of eurozone countries to help bring down their borrowing rates. Yields on Spanish and Italian 10-year bonds dropped after the announcement, in a sign that it had restored confidence in some investors, while European stock markets surged.

The OECD, which had warned in its forecast that the eurozone crisis remained "the most important risk for the global economy", welcomed the announcement. It had earlier called for more policy action to instil confidence in the single currency.

The Paris-based organisation's latest forecast for the UK is significantly worse than the 0.5% expansion it predicted last year, when it slashed its forecast from growth of 1.8%. The UK is predicted to be the worst performing G7 nation apart from Italy in the year.

However, it warned that its forecast does not take into account the effects of the Olympics, which many expect to provide a boost to the economy through an increase in tourism and spending on the high street following TeamGB's success. The OECD predicted the UK economy will not return to growth until the final quarter of the year, when it will expand marginally.