NIESR says UK government should boost economy in short term

Friday, 03 February 2012 10:11

The National Institute of Economic and Social Research (NIESR) says that the UK will experience a mild recession in 2012.

It says that the combination of the euro debt crisis and the austerity measures followed by the UK coalition government and European governments are having a substantial negative impact on economic growth.

It warns the UK government that the UK economy is suffering from deficient demand and that fiscal policy is contributing to this. The report says that “a temporary easing of fiscal policy in the near term would boost the economy.”

The report advises that the government could provide a short-term boost without putting at risk the credibility of its long-term deficit reduction targets.

The report says: “The credible commitment to a sustainable fiscal policy over the longer term provides the government with the flexibility to provide a clearly defined and temporary boost to near-term demand.”

It says that the UK economy will contract by 0.1 per cent this year before rebounding to grow by 2.3 per cent in 2013. However, this forecast could be revised downwards if a resolution to the euro debt crisis is not found.

NIESR predicts that the eurozone will also experience recession this year. Overall NIESR predicts global growth of 3.5 per cent in 2012, rising to four per cent in 2013. The latest forecast is about half a per cent lower for each year than NIESR’s previous forecast.

In contrast to the UK and Europe, the USA is expected to come out of recession stronger and faster with growth of around two per cent expected in 2012, boosting President Obama’s re-election chances.

Overall global growth will continue to be driven by China and India, though the rate of growth is expected to slow in these two countries.

The report predicts that the consumer prices index measure of inflation in the UK will fall to 2.2 per cent in 2012 and fall further to 1.4 per cent in 2013. Unemployment is likely to rise from its current level of 8.4 per cent – already the highest rate in the UK since 1995 – to 9.0 per cent this year, according to NIESR’s predictions.

It says the UK economy remains weak and that economic conditions are unlikely to improve in the near term as the YK’s main export market, the eurozone battles recession and the deleveraging of both private and public sectors in the UK continues.

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