PRESSURE on Gordon Brown over the state of the economy intensified yesterday as unemployment rose for an eighth month in a row and the OECD said growth would drop to just 1.7 per cent this year.

As Mr Brown prepares to face MPs’ questions this morning, the Organisation for Economic Co-operation and Development added to his worries with a warning that taxes may have to rise, and stinging criticisms of Britain’s living standards, productivity and public sector efficiency.

The Chancellor is due to update the Cabinet today as concern mounts over deteriorating conditions ahead of his impending Pre-Budget Report.

Anxieties were fuelled by yesterday’s larger than expected rise in numbers out of work and claiming benefit last month. Claimant unemployment rose by 8,200, taking its total increase over eight months to 62,000.

The sustained rise in the jobless count will reinforce expected calls today from the British Chambers of Commerce for cuts in interest rates. But hopes of a November cut in rates suffered a further blow as Mervyn King, the Bank of England’s Governor, underlined his scepticism over the case for a cut. “I can’t promise an interest rate cut . . . ” he said in an interview.

Mr Brown may take some comfort from the OECD’s forecast that growth will revive to 2.4 per cent next year. It said there was not yet a “compelling case” for lower base rates.

Ministers can also point to a strong, 103,000 rise in numbers in work to a record level of 28.8 million shown by their preferred gauge of employment.

The OECD outlined the risks to its prediction of recovery in 2006. It highlighted threats of higher oil prices and a delayed recovery in exports. Consumer spending growth was “likely to remain modest”.

While it praised Britain as a “paragon of stability” until now and gave high marks for past economic management, opposition parties seized on its other, scathing rebukes.

With government borrowing overshooting plans and “likely to remain close to 3 per cent of GDP”, the OECD said tax rises of as much as £10 billion could be needed.

Despite heavy spending on public services, improvements had been “slow to come” and “fell short” of targets, it found.. It blamed underinvestment in transport infrastructure, which “may still be inadequate”, a “mediocre” record for innovation among companies and a lack of workforce skills for underperforming UK productivity. This meant that living standards were stuck at just above average among the OECD’s 30 member countries.

George Osborne, the Shadow Chancellor, said that the OECD had exposed “major flaws at the very heart of the UK economy”. But the Treasury insisted that Britain, while it was “not complacent”, emerged as the most stable of the world’s big economies, with the OECD’s most business-friendly environment.

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