Niesr cuts UK growth outlook to 2.5% ahead of election to reflect weak first quarter

The National Institute of Economic and Social Research (Niesr) has its forecast for UK economic growth in 2015 to 2.5% from 2.9%, projected three months ago.

The think tank also expects growth rate to come down further to 2.4% in 2016. In 2014, the British economy grew by 2.8%.

The cut in the growth outlook comes after the country recorded weaker-than-expected official GDP figures for the first quarter, which saw Britain's growth rate halve to 0.3%.

Niesr said that the lower growth is most likely a temporary deceleration.

"We expect growth to rebound through the remainder of this year. This will be driven largely by consumer spending, supported by the positive terms of trade effect from the sharp fall in oil prices," the think tank said in a statement.

It also expects the level of prices to fall slightly for much of the year and unemployment to fall to about 5.25% at the end of 2015.

Niesr added that it expects monetary policy to begin tightening in the first quarter of 2016 as temporary oil price and exchange rate effects dissipate. After this, bank rate would continue to increase by roughly 50 basis points a year.

"The divergence of monetary policy cycles has led to a continued appreciation of the sterling effective exchange rate. Despite this, we expect export performance to overcome continued short-term weakness and for net trade to contribute positively to GDP growth in the medium term," it said.

Explaining the downgrade, Niesr economist Simon Kirby told a press conference that Britain's productivity performance remains a "major domestic risk".

The downgrade comes a day before the national election in the country, in a major blow to Prime Minister David Cameron. As of now, Cameron's Conservatives and Ed Miliband's Labour Party remain tied in opinion polls. None of the parties are likely to win enough seats in Parliament to form a government single-handedly.