UK economy will slump in 2012, says forecast

The National Institute of Economic and Social Research predicts that we'll experience a mild recession in the first half of this year.

A new forecast for both the UK and global economies predicts mild recessions for the UK and the Eurozone this year, so long as the crisis on the continent doesn't worsen.

The UK and World Economy Forecast by the National Institute of Economic and Social Research (NIESR) predicts the UK economy will contract by 0.1% in 2012. It forecasts a recession in the first half of the year, as we spend less, credit remains tight and businesses hold back from investing.

It says that growth will pick up in the second half of the year, but only if the Eurozone crisis is resolved successfully. The Office for Budget Responsibility (OBR) has forecast growth of 0.7% for the year.

The NIESR report forecasts a rise in unemployment to 9% - it’s currently at 8.4%.

More worryingly, it predicts that unemployment will still be over 7% in 2014, compared to the OBR’s forecast of 5.25%.

The report forecasts that inflation will fall back to 2.2% and drop below the Bank of England’s 2% target in the second half of the year, with a further drop to 1.4% in 2013.

More damningly for the Government, the report says that “the current stance of fiscal policy” – in other words, austerity measures – are not helping the situation. It recommends “a temporary easing of fiscal policy in the near term” to boost the economy.

Earlier this week, the Institute for Fiscal Studies said that the Government could afford tax cuts in the short term without worrying that the Bank of England would raise interest rates.

But it also warned that any worsening of the situation in the Eurozone would plunge the UK back into a deep recession.

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