The Organisation for Economic Co-operation and Development (OECD) has warned that economic recovery is stagnating among G7 countries and has predicted slowing growth in the UK.

Economic growth will slow to 0.1 per cent in the third quarter of 2011, before dropping to 0.07 per cent at the end of the year, according to analysis from the OECD’s latest Interim Economic Assessment.

The report showed that falling household and business confidence in the major industrialised countries, exacerbated by the debate over fiscal policy in the US and the sovereign debt crisis in some countries, is impacting world trade and employment.

The OECD voiced concern that previous improvements in the labour market are ‘fading’ and that higher unemployment will become entrenched.

The organisation forecasts that growth in the G7 economies, excluding Japan, will remain at an annualised rate of less than 1 per cent in the second half of the year.

OECD chief economist Pier Carlo Padoan said, ‘Growth is turning out to be much slower than we thought three months ago, and the risk of hitting patches of negative growth going forward has gone up.’

Based on figures from its latest report, the OECD recommends that the central banks maintain policy rates at current levels and then consider lowering rates if there is no sign of recovery.

‘The policy imperative is to rebuild confidence,’ Padoan added.

The latest blow to the UK economic recovery comes after Chancellor George Osborne’s speech to City figures earlier this week, in which he acknowledged that it was not a ‘normal recovery’ and that growth expectations had been revised down.