British economy prospects grim, says think-tank

August 4th, 2012 - 1:44 pm ICT by IANS  

London, Aug 4 (IANS) The prospects for the British economy over the next six months are grim, and have worsened quickly this year, according to a report by a London economic think-tank.

The National Institute for Economic and Social Research (NIESR) report predicted Friday that the British economy, now in a double dip recession after three quarters of negative growth, will contract by 0.5 percent this year, reported Xinhua.

Simon Kirby, senior research officer at the NIESR, said that for 2012 Britain’s GDP growth had been revised down from no growth to a contraction of 0.5 percent, and for 2013 from 2 percent growth to 1.3 percent.

“We have revised down our projection for GDP growth this year and next year. This is, relatively, due to domestic factors this year,” he said.

“Import penetration was relatively higher than had been expected, perhaps indicating that those areas of the economy competing with imports have been less successful,” Kirby added.

Growth would be weaker in 2013 because of weaker demand from the euro area, hitting projected GDP growth by a cumulative 0.5 percent in 2012-13.

The NIESR also forecast that unemployment will peak at 8.6 percent in 2013.

Its forecast also predicted that consumer price inflation would fall below its 2-percent target by the end of 2012, after a prolonged period of being significantly over target but following a falling trend.

British inflation was 2.4 percent in June, but had hit a peak of over 5 percent in late 2011.

Despite the uncertainties in the economic outlook and the poor performance of the economy over the past three quarters, NIESR economists expect the cyclically adjusted current government budget to be in surplus in 2016-17, which is consistent with government targeting.

Growth this year had been hit by the ‘Jubilee effect’ — the longer public holiday and disruption associated with the Queen’s Diamond Jubilee celebrations in June — which had reduced estimated growth in the second quarter by 0.4 percentage point, but with a corresponding boost to be expected in the third quarter.

However, the NIESR report said this implies that underlying growth is still negative.

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