The National Institute of Economic and Social Research (NIESR), a leading think-tank, has warned thatUKwill return to recession in the first half of this year. According to the institute, theU.K.economy is suffering from a combination of sluggish consumer and business confidence, rising unemployment, tight credit conditions, high costs of living, muted wage growth and a worsening euro-zone debt crisis, and has predicted a GDP drop of 0.1% in 2012. However, if the eurozone debt crisis is resolved, the think-tank expects the economy to return to growth of 2.3% in 2013. The UK economy, which shrank by 0.2% in the fourth quarter of 2011, is already close to another recession, defined as two consecutive quarters of economic contraction.
In itsUKand World Economy Forecast NIESR said: “We forecast a return to technical recession in the first half of this year, as households continue to retrench, credit conditions remain tight, and businesses are reluctant to invest given uncertainty about both domestic and foreign demand.”
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The think-tank warned that the unemployment rate will rise to 9.1 percent, and even if the economy were to recover post 2013, high joblessness might persist, which could create problems of high structural unemployment. The think tank expects inflation to fall sharply, with the consumer price index down to 2.2% this year and 1.4% in 2013.
According to Jonathan Portes, Director at NIESR, without measures to stimulate employment, Britain was running the risk of long-term economic and social damage. He urged the government to increase its spending in infrastructure projects in the near-term, which would help generate jobs, without harmingBritain’s credibility as a debtor. The institute has estimated in the report that debt-financed investment spending of around 15 billion pounds should reduce unemployment by 0.3 per cent.
NIESR’s advice to the government to implement a fiscal stimulus program by using measures such as a tax cuts and spending increases, comes on the back of the Institute for Fiscal Studies, another major think-tank, on Wednesday, calling on the U.K. Chancellor of the Exchequer George Osborne to ease fiscal policy.
The government will deliver its budget on March 21, and Chancellor George Osborne, despite the weakening economy, has pledged to stick to his fiscal plans.
NIESR expects global growth, led by China and India, to be at 3.5% in 2012, and 4% in 2013. It says the US economy will grow 2% this year