UK economy to grow 1pc in 2013

Sarah Davidson

November 2, 2012

The National Institute of Economic and Social Research also said it expects consumer price inflation will be 2.7% this year and 2% in 2013.

Meanwhile it said unemployment will to continue to stabilise at about 8%.

Over the past two years GDP has been broadly flat, and the economy is still around 3.3% below its pre-recession peak in January 2008.

Overall this year it expects no GDP growth but this is a slightly stronger picture than presented in the institute’s July forecast, though little different from its January and April forecasts.

The outlook for the international economy has weakened which prompted NIESR to lower its forecast for UK growth next year slightly.

It now expects the economy to expand by 1.1% per annum with no contribution from net trade and somewhat faster the following year.

Only in 2015 does it expect economic growth to rise above the UK’s potential rate of 2% per annum.

Risks to the UK economy are dominated by the external environment. Despite the uncertainty about the US ‘fiscal cliff’ and the degree to which emerging markets are slowing, from the UK perspective developments in the euro area are most important, both because of trade and financial sector linkages.

The reduction in uncertainty in the euro area, following the announcement of the OMT, should – if sustained – provide some support to spending in the UK, said NIESR.

It said: “Slow growth has in turn made it much more difficult to reduce deficits. We now expect that the cyclically adjusted current budget will be approximately balanced in 2016–17, and in surplus the year after, which will be the new target year post-Autumn Statement.

“However, public sector net debt as a proportion of GDP will not fall until 2017–18.

“The UK labour market remains remarkably resilient in comparison both to previous recessions and to some other countries (for example, the USA). The absence of any drop in labour force participation is particularly welcome.”

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