Report: Economy To Flatline With More Jobless
The British economy is expected to flatline for at least another six months, with a further deterioration in the job market, according to a new economic report.
The National Institute of Economic Research (NIESR) has marginally revised up its 2012 growth forecast to zero from the -0.1% from a February prediction, mainly due to an improved outlook for private sector investment and consumer spending.
Their view compares with the government's Office for Budget Responsibility's (OBR) March prediction that the economy will grow by 0.8% in 2012.
Britain's economy fell into its second recession since the financial crisis after contracting by 0.2% in the first three months of 2012, official data showed last week.
The institute also predicted a worsening of the job market and the current jobless rate of 8.3%.
"The unemployment rate will rise to about 9% this year and remain high throughout the forecast period," the NIESR study said.
"Elevated unemployment for such a long period is likely to do permanent damage to the supply side of the economy, with large long-run economic costs."
The NIESR also warned that a return to growth next year remains at risk from rising oil prices and ongoing crises in the eurozone.
NIESR's director Jonathan Portes, who has long urged the government to ease its austerity drive, said spending cuts constituted a big drag on the economy.
"There is clearly a substantial negative impact on GDP in the recent months from the very large cuts we've seen in public sector net investment," he said.
"Public sector net investment (was) cut by something like a quarter in just the last year alone, so the case for restoring those cuts is very strong and for investing more in the short-term in infrastructure projects and in housing in particular."
Discounting the risk factors, the independent think tank predicted the economy to grow by 2% in 2013 - down from its February estimate of 2.3% - with subsequent growth of 2.7% in 2014 and 2015.
It said an annual growth rate for Britain of around 2.5% over the medium-term is anticipated.
NIESR also said it expected inflation to just about fall below the Bank of England's Monetary Policy Committee (MPC) 2% target by the end of the year - from the March rate of 3.5% - due to the economy weakness and temporary oil price rises.
"Given that we expect inflation to drop below target at the end of this year, the MPC should not let the current inflation rates constrain them from any further actions to stimulate a weak economy," NIESR said.