NIESR provides pessimistic outlook for UK economy

| July 22, 2009 | 0 Comments

The National Institute of Economic and Social Research (NIESR) is joining many other leading think tanks by forecasting a slow recovery in the UK.

The research body is expecting total UK Gross Domestic Product (GDP) to fall 4.3% this year before experiencing modest growth of 1% next year and 1.8% the year after.

The forecasts are far more pessimistic than those issued by the Government, who forecast a fall in GDP of 3.5% in 2009, followed by growth of 1.25% in 2010 and 3.5% the year after.

Meanwhile, according to the NISR, the fourth quarter of 2009 is set to mark the first increase since the first quarter of 2008.

Earlier this month, the Office For National Statistics (ONS) confirmed that the UK economy shrank by 2.4% in the first quarter of 2009 - far worse than expected and the biggest quarterly decline in 51 years.

The ONS is scheduled to report the first estimate of second quarter GDP later this week.

In the meantime, the NIESR said it could take until 2014 for income per head (GDP per capita) to return to pre-recession levels.

“Current government plans to reduce the debt burden rely too heavily on optimistic GDP growth forecasts and tax revenue buoyancy. The introduction of a more credible plan to return the public finances to a path of fiscal sustainability remains a necessity,” comments the NIESR.

Official figures yesterday revealed that UK public sector borrowing soared by £13 billion in June, up from £7.5 billion a year ago.

This takes the nation’s net debt to £798.8 billion - an increase of £157 billion compared with a year earlier.

The NIESR is predicting significant spending cuts and a rise in taxes over the next four years in order to reduce the UK’s spiralling debt levels.

In terms of unemployment, the NIESR expects the rate to peak at 9.3% - it currently stands at 7.6% - the highest in over a decade.

In other news, the Ernst & Young Item Club, the influential think-tank, said earlier this week that the UK economy is heading for a ‘fragile recovery’ and is predicting that the economy will contract by 4.5% this year - the biggest fall in any year since 1945.

Finally, the Item Club warned of the threat posed to the economy from swine flu. The flu could wipe out any growth next year, with a worst case scenario of a further 1.2% contraction.

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