Chancellor George Osborne is right to enforce banking reforms that will ring-fence risky operations from savers' deposits, a think-tank says.
The Organisation for Economic Co-operation and Development (OECD) said in its latest report on the UK that ring-fencing recommendations should be implemented "to shield the taxpayer and the domestic economy from failures in the financial sector".
Its backing for the plans come after Mr Osborne launched the Banking Reform Bill, telling Britain's biggest banks they will face complete separation if they flout new ring-fencing rules.
The new legislation will give the Government and a new banking watchdog powers to "electrify the ring-fence" if banks fail to split high street branch operations from the dealing floor.
The OECD said ring-fencing "makes it easier and less costly to resolve banks that get into trouble, avoiding an excessive burden being borne by taxpayers, and it makes retail banking more resilient to external financial shocks."
But it added: "Nevertheless, ensuring that the ring-fence between investment and retail banking is and remains effective will require careful financial system supervision and monitoring of shadow banking."
On the UK economy, the OECD said the short-term outlook was "weak" but predicts growth of 0.9% in 2013, rising to 1.6% in 2014.
It suggested Mr Osborne may need to adjust his austerity plans, saying "if growth significantly under-performs expectations over the coming months, the flexibility of the fiscal framework should be utilised".
The OECD joined recent calls for the Government to support growth more, saying it must invest in "productive infrastructure, with private financing and further reprioritisation of public spending", and repeating warnings that unemployment could start to rise if the eurozone crisis keeps weighing on the UK economy.
But there have been cheerier signs in both the UK and Europe in recent days. with industry figures signalling a return to growth in Britain's powerhouse services sector, which accounts for 77% of the economy.
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