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July 28, 2010    

Think tank provides gloomy recovery prospects

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by Kay Murchie

Influential think tank, the National Institute for Economic and Social Research (NIESR), believes the economic recovery will be slower than the Government anticipates.

The new coalition Government is optimistic in its prediction for economic growth and expects it to be 2.3% next year and 2.8% the year after.

However, the Institute is forecasting that the economy will expand by 1.2% in 2010, rising to 1.7% in 2011 and 2.2% the year after.

The think tank also believes consumer spending will not recover to pre-recession levels until at least 2015.

The NIESR has joined many other business groups in predicting that growth in the second half of 2010 will be weak as a result of massive spending cuts.

Many leading business groups have already warned that the Government’s tough measures to cut the budget deficit could risk pushing the UK back into recession.

Meanwhile, Simon Kirby of the NIESR comments: “Government spending will be detracting from growth rather than adding to it as it has been in recent quarters.”

The NIESR also believes inflation will not return to the Bank of England’s 2% target until 2012 - primarily due to the decision to hike VAT from next January.

The latest official figures show British consumer price inflation (CPI) currently stands at 3.2%.

In related news, last week, the Office for National Statistics (ONS) revealed UK economic growth for the second quarter surged ahead by 1.1% – almost double the rate analysts had forecast.

Many experts had expected the economy would experience growth of 0.6% but the expansion of 1.1% for the April to June quarter was boosted by an improvement in services output and the fastest rise in construction output in almost 50 years.

However, following the release of the figures, one economist said this is about “as good as it gets for the economy for the time being“.

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