Thursday 3 November 2011

NIESR predicts 70pc chance of UK recession

NIESR more than halved its UK 2012 growth forecast to 0.8pc from an earlier forecast of 2pc and said the economy was in store for the slowest recovery in almost 100 years.
It warned that UK fiscal policy was "too tight" and said the Chancellor should scale back austerity plans to support the economy by announcing targeted tax cuts in his Autumn Statement on November 29.
"There are options available to UK policymakers to try to minimise the probability of the recession and boost growth in the short term," said Simon Kirby, senior research fellow at NIESR.
Mr Kirby said options including a reduction in income tax could make a significant difference.
"It remains our view that in the short term fiscal policy is too tight, and a modest loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility," NIESR said.
"The case for this approach has clearly been strengthened by recent developments, both domestically and internationally."
George Osborne has repeatedly stated that he will press ahead with his current deficit cutting targets, despite a deteriorating outlook.
A Treasury spokesperson said: "The difficult decisions taken by the Government to tackle the deficit and rebalance the economy are providing a firm foundation for a sustainable recovery.
"This decisive action has been endorsed by business groups and independent organisations such as the IMF and OECD and, as the Chancellor said, the confirmation this week that the economy grew by 0.5pc in the third quarter is a positive step forward for the UK. But what remains clear is that the UK is not immune from the current international uncertainty and instability, including in the eurozone,and the recovery will be choppy."
However, NIESR said that although it was forecasting a current budget deficit of 6.7pc of gross domestic product in 2012-13, compared with the Office for Budget Responsibility's 4.5pc forecast, it estimated the Government would meet its rolling five-year target with a budget surplus in 2016-17.
The institute said the British economy's recent poor performance had been driven by weak domestic demand rather than the eurozone's woes, but argued the latter would increasingly weigh down on the UK.
It revised down its 2011 growth forecast to 0.9pc from 1.3pc, and said the economy would not return to its pre-recession peak until 2013, making it "the slowest recovery since the end of the First World War".
Despite the downbeat outlook there was good news from the latest Markit/CIPS PMI, which showed the construction sector was stronger than expected in October. The index rose to 53.9 from 50.1 in September, where anything above 50 indicates expansion. The commercial sector and new orders measures were particularly strong. Economists had forecast a slight decline to 50.

By taken from http://www.telegraph.co.uk/finance/economics/8865422/NIESR-predicts-70pc-chance-of-UK-recession.html

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