The UK economy is more vulnerable than other countries to the turmoil in financial markets and its housing market is also at greater risk of a downturn, the Organisation for Economic Co-operation and Development said yesterday. Financial Times

In its twice-yearly Economic Outlook the OECD said the Bank could 'afford' a series of rate cuts to offset an economic slowdown.

Having expected the Bank to cut yesterday, it said more rate reductions would be justified in the first half of next year.

This contrasts with its advice to the US Federal Reserve and the European Central Bank, which it counselled against cuts, saying there was a risk of higher inflation becoming ingrained in the public psyche and therefore in wage claims.

Jørgen Elmeskov, acting head of the economics department, said the UK was more exposed than many other countries to the credit squeeze because of its large financial sector. It was also one of the few countries outside the US to have a mortgage subprime sector.

The OECD put the chances of a sharp fall in UK house prices at between 15 and 25%.