The UK economy will return to recession in the first half of this year, with growth set to pick up in H2 and accelerate in 2013, according to a leading think-tank. The National Institute of Economic and Social Research (NIESR) predicts a 0.1% contraction in the UK economy in 2012, followed by growth of 2.3% next year. The UK’s budget will return to balance in 2016/2017, it adds, while inflation is predicted to fall below the 2% target in H2 2011. Unemployment rates will rise to c.9% this year, NIESR says, and remain high in the coming years; it’s predicted to exceed 7% in 2014. “The UK economy remains weak, and over the near term we do not expect economic conditions to improve,” the group says. “We expect output to be flat this year, as both the private and public sectors continue simultaneous deleveraging. Meanwhile, while net trade provided the only significant positive contribution to growth in 2011, the Euro Area, the UK’s largest trading partner, is likely to enter recession. “We therefore 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. Assuming a successful resolution of the euro crisis, we expect growth to pick up in the second half of the year, and to accelerate somewhat in 2013.” NIESR said the continued high unemployment is “likely to do permanent damage to the supply side of the economy, with large long-run economic costs”.

Topics