The National Institute of Economic and Social Research (Niesr) says that the UK economy is likely to remain in depression for another two years, even though it admits it has come out of recession.
Niesr classifies a depression as when output is below a previous peak. It says that the UK economy will take another two years to reach the level of output it was at the beginning of 2008.
The financial crisis has already led to the longest depression since the Great Depression of the 1930’s.
Niesr says that the UK economy has grown by 0.5 per cent since October 2011 but that it is still 2.8 per cent below its peak at the start of 2008.
The economy came out of its double-dip recession in the third quarter when growth of one per cent was recorded. However, much of this was due to Olympic ticket sales and a reversal of the loss of output from the extra Bank Holiday as a result of the Queen’s Diamond Jubilee.
The UK entered a double-dip recession when the economy contracted between September 2011 and June 2012 before posting the encouraging growth figures for the third quarter in 2012.
There are concerns that the economy cold contract again and enter an unprecedented triple-dip recession.
However, Niesr says it expects the economy to grow by 1.1 per cent in 2013 and by 1.7 per cent in 2014.
This suggests that it will be 2015 before the economy sees a sustained recovery and 2017 before the economy returns to regular normal levels of growth which are likely to be reduced to two per cent from previous normal levels of growth that were 2.5 per cent before the financial crisis of 2007.
Niesr economist, Simon Kirby says the depression is due to weak consumer and business spending and spending cuts by the government as well as lower levels of exports partly as a result of the euro debt crisis.
He added that although employment levels have remained healthy and is above the pre-recession level, the population of the UK has increased so the employment rate is still below its peak.
He also said that many people who are employed are not working as many hours as they would like.
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