The National Institute of Social and Economic Research (NIESR) has released its latest UK and global economic forecasts.
It expects the UK economy to contract slightly this year and to grow by just over one per cent in 2013. This is a slight improvement from NIESR’s last forecast in July, and roughly the same as its first two predictions of 2012 in January and April.
NIESR says that over the past two years the UK economy has been basically flat and that output is still around 3.3 per cent less than it was before the start of the credit crunch in January 2008.
NIESR expects inflation to rise slightly to 2.7 per cent in the last three months of 2012 and to fall to two per cent in 2013. The organization predicts that unemployment will stabilize at around 2.5 million or 8.0 per cent and that the jobs market “remains remarkably resilient”.
The report says that because the outlook for the international economy has weakened, NIESR expects no contribution from net trade, the balance between imports and exports, but still expects the UK economy to grow by 1.1 per cent. Growth of two per cent per annum or more is not expected to be achieved until at least 2015.
The reason for the weak outlook for the global economy is the US ‘fiscal cliff’, the agreement between the Democrats and Republicans that tax increases and spending cuts will automatically apply because no agreement could be reached on how to tackle US government debt.
However, NIESR says that the main threat to the UK economy comes from the ongoing euro debt crisis. This is because more of the UK’s trade is with the eurozone.
NIESR expects there to be a delay in reducing the cyclically adjusted current deficit. This, according to NIESR, will happen in 2016-17 and will be in surplus the year after. However, it says public sector net debt as a proportion of GDP will not fall until 2017-18.
In its forecast for the global economy, NIESR predicts that global economic growth will come in at 3.1 per cent in 2012 and 3.4 per cent in 2013.
Within that the eurozone is expected to contract by 0.5 per cent in 2012 and grow marginally in 2013. It expects the euro to remain intact but says some eurozone economies will see “depression-era” unemployment rates. The US is predicted to grow by two per cent in both years.
It expects the BRIC economies (Brazil, Russia, India and China) to grow at a reduced rate but to avoid “hard-landings” of their economies.
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