| CATEGORY: NEWS AND ANNOUNCEMENTS |
Fri 03 Aug 2012
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LONDON (SHARECAST) - -NIESR cuts 2012 and 2013 UK GDP forecasts
-NIESR sees unemployment topping out lower, at 8.6%
-NIESR criticises piece-meal approach to financial reform
-NIESR tells government to postpone austerity
-Delaying austerity would creat 200,000 jobs
In its latest quarterly forecasts, released overnight, the National Institute for Economic and Social Research (NIESR) lowered its growth forecasts for the UK economy in 2012 and 2013.
It now sees economic output contracting at an 0.5% rate this year instead of holding steady as had previously been estimated. For next year its estimate comes down to 1.3% from 2.0% before.
Thus, the “think-tank” emphasises that the ‘Jubilee effect’ reduced estimated growth in the second quarter by 0.4 percentage points, “with a corresponding boost to be expected in the third quarter.” However, the researcher adds that, “but focusing on a ‘double dip’ distracts from the more important trend; the level of output has effectively been flat over the past two years.”
For them the causes of the above are twofold: private sector adjustment has been exacerbated by fiscal consolidation and a dysfunctional financial system. Aggravating the above are the weak demand conditions to be seen in the world economy and in particular the Euro Area.
As regards the latter it goes on to point out that having a clear plan for the financial infrastructure which the UK economy requires would be far better than the current piecemeal approach. By that they are referring to the various support measures announced by the government such as the Funding for Lending scheme, the National Loan Guarantee Scheme, and UK Guarantees. NIESR welcomes those initiatives but warns that the design of the schemes entails significant so-called deadweight losses.
Borrowing this year is expected to exceed the OBR forecast by a significant amount, but this is largely a cyclical rather than a structural phenomenon, so the cyclically adjusted current budget deficit is expected to be eliminated in 2016–17, consistent with the government's revised target.
Lastly, the NIESR says that “it remains the case that there is scope for a less aggressive path of fiscal tightening. The government should consider on-balance sheet funding of key projects, concurrent with a comprehensive restructuring of banks and key funding markets.” Precisely in this regard, the NIESR has published research, carried out in conjunction with the London School of Economics and Political Science, that estimates output would be 239bn pounds higher by 2021 if Osborne’s austerity plan had been delayed by three years.
AB
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