IPPR: Economic uncertainty could make 2013 a "groundhog year"

Wednesday, 02 January 2013 11:26

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The UK economy is facing a tough 2013 in which it will be a “hard grind” to achieve any economic growth as the euro debt crisis continues to provide a bleak backdrop to the economy, according to a prognosis from the Institute for Public Policy Research (IPPR).

it says that continuing uncertainty over the state of the global economy caused by the euro debt crisis and the ongoing negotiations on the US fiscal cliff mean that households and businesses are not prepared to spend and invest to the possible detriment of the economy.

According to IPPR Chief Economist Tony Dolphin this means that 2013 is likely to closely resemble 2012 in terms of economic performance.

The IPPR warns that 2013 could be a “groundhog year” where austerity and a lack of consumer and business confidence could lead to sluggish growth and a lack of investment to get the economy moving again.

The report suggests that confidence has been hampered by predictions that austerity measures will last longer than previously thought as set out in the Chancellor, George Osborne’s Autumn Statement where he was forced to admit that it will take until 2018 to reach his austerity targets.

The IPPR thinks one impact of this is that businesses will be reluctant to invest in new staff and research and development and consumers will be put off from spending.
IPPR Chief Economist Tony Dolphin criticised the government for not doing more and said Mr Osborne "still does not have a path back to growth".

Mr Dolphin said: "Policy-makers appear to have little idea how to boost growth in the economy and are left hoping that the news will get better.

"The risk is that 2013 could be groundhog year for the UK economy.”

He said the policymakers appeared to be relying on "something just turning up". He warned that the Office for Budget Responsibility’s growth predictions of 1.2 per cent in 2013 and two per cent in 2014 depended on households and businesses being prepared to ditch the austere habits of the last four years, something that is unlikely given the sentiments expressed by the Chancellor in his Autumn Statement.

He added: "The latest forecasts suggest growth in 2013 will be weak, but better than in 2012, and that unemployment will rise.

"The risk is that they are too optimistic about growth, but that – unlike in 2012 – they are right about unemployment."

How this plays out politically will depend to some extent on what happens to unemployment.

"In 2012, the double-dip recession did less damage to the credibility of Government economic policy than it might have done because employment increased and unemployment fell by more than expected.

"The best way to describe the outlook for the UK economy is 'uncertain'."

The IPPR wants the government to increase demand in the economy by investing in infrastructure, guaranteeing a minimum wage job for anyone who is unemployed for more than a year and to establish a British Investment Bank.

 

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