Slow growth rules out rate rise, says think tank
Published 05/05/2011 | 08:00
Economic growth will be weaker than expected this year and incomes per head will fall more sharply, a respected think tank has forecast as Bank of England policymakers meet to decide interest rates.
The National Institute of Economic and Social Research (NIESR) downgraded its forecast for growth in 2011 to 1.4% from 1.5% and predicted that real disposable income will fall by £301 per person.
NIESR's downbeat assessment follows yesterday's surprise announcement of a fall in house prices along with weak bank lending figures. Along with slowing manufacturing growth and figures showing the economy barely grew in the first quarter, the outlook for the economy is almost universally gloomy.
The recent slew of bad news has virtually ruled out an increase in rates from the record low of 0.5% - a move the market believed was a near certainty earlier this year.
The MPC is trying to balance the need to support the weak economy with prices rising at double the Bank's 2% target rate.
House prices unexpectedly fell in April after two months of strong growth, Nationwide have said. The 0.2% drop means property prices are now 1.3% lower than a year ago.
The NIESR predicts a 4.5% drop in house prices in real terms this year with further falls averaging 1.5 % for the following 5 years.
NIESR predicted growth will pick up to 2 % in 2012 but only outstripping its trend rate of 2.1% by 2013.