UK economic recovery to remain sluggish

| May 6, 2011
UK economic recovery to remain sluggish

Recovery of the UK economy is to remain sluggish, with GDP growing by 1.4% in 2011 and by 2% in 2012, the National Institute of Economic and Social Research (NIESR) predicts.

Growth this year will be constrained by government spending cuts and a squeeze on household finances resulting from higher taxes and rising inflation.

According to the think-tank, consumer price inflation will reach 4.5% in 2011 and real disposable incomes will fall by 1.3%, contributing to a 0.6% fall in consumer spending this year.

More positively, the body expects exports to grow by 6.9% in 2011 and by 4.3% in 2012.

However, a weak recovery will feed through to lower tax revenues and NIESR suggest that even if government spending plans are met over the next four years, public sector net borrowing will fall to 3.6% of GDP in 2015/2016 rather than the 1.5% projected by the Office for Budget Responsibility.

Turning to house prices, the Institute is forecasting a 4.5% fall in 2011, followed by an average 1.5% decline per annum in the subsequent four years, as tighter monetary policy raises borrowing costs.

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