The European Commission today became the latest international body to issue a warning on the state of the UK economy, reports Shamik Das.
The European Commission today became the latest international body to issue a warning on the state of the UK economy.
The EC’s “Assessment of the 2012 national reform program and convergence program document” says:
Growth is likely to remain subdued in 2012 as the fiscal consolidation continues, the outlook for the European economy remains weak, and UK consumers remain squeezed, despite gaining some benefit from falling inflation.
The UK has a considerable challenge ahead in reconciling a need for further deleveraging with the need for more investment across the economy to support sustainable and balanced growth…
Although the government has started to make progress on reducing the deficit, this is still forecast to stand at 6.1 % in 2012-13, one of the highest levels in the EU, and fiscal consolidation remains a pressing challenge for the UK.
Today’s warning follows the IMF’s ultimatum last week that, should the economy continue to stagnate, the government should switch to a “Plan B”:
If growth does not build momentum and is significantly below forecasts even after substantial additional monetary stimulus and further credit easing measures, planned fiscal adjustment would need to be reconsidered.
The OECD also recently said the UK economy will grow only 0.5 per cent in 2012.
However, today’s EC report wasn’t all bad news – inflation is expected to continue on a downward spiral, and there is forecast to be an Olympic bounce, with growth picking up in the third and fourth quarters of 2012 and continuing into 2013:
This growth is expected to come from an uptick in both consumption and corporate investment, which will be aided by the London Olympics in the third quarter of 2012.
Inflation expectations of both business and households for 2012 are significantly lower than in 2011. Inflation is expected to decrease to an average of 2.9% in 2012.