The NIESR think tank predict "lacklustre" growth in 2011. They believe "there is a case for delaying some of the austerity programme" and urge the Chancellor to develop a 'Plan B'.
In what will be seen as worsening economic news for the Government, the respected and independent National Institute of Economic and Social Research (NIESR) have predicted “lacklustre” growth in 2011. They believe “there is a case for delaying some of the austerity programme”, vindication of calls for the Chancellor to develop a ‘Plan B‘.
A press release from NIESR outlined that:
“Growth in 2011 will be lacklustre. The economy will expand by 1.5 per cent, barely higher than the 1.4 per cent expansion in 2010. Some of the output lost to the exceptionally poor weather in late 2010, when GDP fell by 0.5 per cent, will be regained in early 2011, but the average rate of growth across the two quarters will be just 0.1 per cent…
“Working out the right balance of macroeconomic policy in this environment involves making a judgement about the size of the output gap. We estimate that the economy is currently operating around 4 per cent below its potential. Given that margin of spare capacity, there is a case for promoting the recovery by postponing at least some of the austerity programme. The cost of delay would be acceptable because borrowing costs are currently low.
The 1.5 per cent rate is down from the 2.6 per cent that the Office of Budget Responsibility predicted in advance of George Osborne’s Budget. NIESR predict that inflation will be 3.8 per cent this year in contrast to the 2.8 per cent predicted by the OBR in November. They estimate that inflation will fall to 1.8 per cent in 2012 while growth will rise to 1.8 per cent.
In a separate release, NIESR outline that rising oil prices are “dulling the outlook for global growth”. But both the Euro Area and the American economy are expected to grow faster than the UK. The Euro Area is expected to grow by 1.7 per cent this year and 2 per cent in 2012 while the US is predicted to grow by 2.6 per cent in 2011 and 2.7 per cent in 2012.
Angela Eagle, Labour’s shadow chief secretary to the Treasury, told the Independent:
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“This report is yet another warning sign to a Conservative Chancellor who seems to be in denial…
“It’s time for George Osborne to get his head out of the sand, look at the facts and rethink his reckless plan to take another £20 billion out of the economy in April on top of the VAT rise. He needs a plan B and he needs one quick.”