UK Economy Set for Weak Growth in 2013 and at Risk of Prolonged Stagnation, Says NIESR

The UK economy is set for slower growth in 2013 than previously thought and faces the risk of persistent weakness, suggests National Institute of Economic and Social Research in its quarterly report.

British economy will grow by 0.7 percent in 2013, its slowest post- recession growth in a century, according to the NIESR estimates. The think tank believes that the economy may avoid the so-called triple-dip recession but will be at the risk of grinding through a prolonged recession.

In November, NIESR had predicted that the economy would grow by 1.1 percent in 2013.

The economy may grow by 1.5 percent in 2014, the institute said, lower than its November forecast of 1.7 percent.

Separately, a report by the Institute of Chartered Accountants in England and Wales (ICAEW) said that the UK will avoid a widely forecast triple-dip recession as business confidence soars in the first quarter of 2013.

Slow growth and poor prospects for the eurozone, Britain's main export market and the slower pace of growth in the domestic economy towards the end of 2012 are the major reasons for the gloomy forecasts, noted NIESR. The economy contracted 0.3 percent in the final three months of 2012.

"The concern should not be whether or not the economy shrank slightly at the start of 2013 to fulfil the 'technical' definition of recession, or whether there is slight growth; but on the broader question of whether stagnation persists throughout 2013," said NIESR.

NIESR also expect the net debt to peak at about 85 percent of GDP in the 2016-2017 fiscal year.

Looking forward, unemployment will stabilise at about eight percent this year but will begin a sustained fall in 2015. NIESR also expects the gross domestic product in per capita terms to return to its pre-crisis peak only in 2018.

According to the institute, a balanced recovery depends upon a resumption of consumer spending, corporate investment and a pickup in exports.

"Such a recovery would best be supported by a significant increase in public sector net investment, with looser fiscal policy in the short term while demand remains weak and radical reform of the financial sector to support lending to the real economy.

" At the same time, a new and credible fiscal framework should underpin a continued commitment to fiscal consolidation over the medium to long term".