Belfast Telegraph

UK 'just misses recession'

But think-tank warns that recovery is still some way off

By Peter Cripps

The UK has narrowly avoided a recession, an influential think-tank predicted, but warned the economy will remain "depressed" until 2014.

The National Institute of Economic and Social Research (NIESR) believes the economy scraped growth of 0.1% in the first quarter of 2012 following a 0.3% fall in the previous three months.

That would mean the UK has dodged another recession - defined as two quarters in a row of declines - disproving a recent gloomier prediction from another think-tank, the OECD, which forecast a 0.1% decline.

But NIESR warned the recovery will not properly take hold until 2013 and said the economy will remain "depressed" until 2014 when output will finally reach the pre-recession peak it last hit in 2008.

That would mean the recovery will take longer than at any time in the past 100 years, including the 1970s or the 1930s.

NIESR uses the term depression differently to many other economists, who take it to mean a severe and prolonged recession.

It said the period of weak growth would leave the UK's output gap - the amount the economy's production levels fall beneath its potential - will increase in coming months.

It said: "These data suggest the UK economy has avoided a technical recession. With such weak rates of growth the UK's negative output gap is likely to widen.

"But we do expect this economic weakness to be temporary, with the recovery taking hold in 2013."

The Government's independent forecaster the Office for Budget Responsibility also believes the UK will avoid a recession.

Industry surveys have suggested that all three sectors of the economy it tracks - manufacturing, construction and services - grew in the first quarter of 2012.

A Treasury spokesman said: "The growth estimate from NIESR supports the independent Office for Budget Responsibility's assessment that the UK will avoid a technical recession.

"Despite the difficult international conditions, there are encouraging signs at the start of the year - inflation is falling, and business surveys show all sectors of the economy growing."

Meanwhile, the Bank of England held back from pumping more emergency cash into the economy yesterday amid hopes that the UK has avoided a technical recession in the first three months of the year. The Bank's Monetary Policy Committee (MPC) kept its quantitative easing (QE) stock at £325bn, while holding interest rates at a record low of 0.5%.

The MPC's April meeting follows a number of positive surveys that have suggested the economy returned to growth in the first quarter of the year.

Many economists still expect another multibillion cash injection from the Bank later in the year, possibly in May and despite American counterparts at the Federal Reserve increasingly moving away from further QE.

Minutes of a meeting published on Tuesday showed fewer members of the Fed said more QE in the US could be necessary.

This shook markets, with the FTSE 100 Index down 2% on Wednesday.


The amount of money the Bank of England has put into the economy