UK's GDP will shrink by 0.5% in 2012, warns thinktank
Britain's GDP will contract by 0.5% in 2012, a leading economic thinktank has said, in one of the gloomiest assessments yet of the state of the economy.
The prediction by the National Institute of Economic and Social Research (NIESR) was down sharply from its zero growth forecast in May - issued before the publication of official figures showing that the economy had contracted by 0.7% in the second quarter of 2012 alone.
NIESR also downgraded its forecast for UK growth in 2013 from 2% to 1.3% and said that the "Jubilee effect" reduced growth this spring by 0.4%. The deterioration in the UK's economy this year has been "more pronounced than even we expected", said the thinktank, which also said that Chancellor George Osborne has "scope for a less aggressive path of fiscal tightening" and should consider stepping up investment in key projects to boost growth.
The report also found that the Government's decision to implement austerity measures immediately after it came to power may have cost the country a total of 16.5% in GDP growth over a decade - the equivalent of £239bn in 2010 prices. If the Chancellor had waited to introduce his deficit-reduction package of cuts and tax rises until 2014, by which time the recovery that began in 2010 would have been "well under way", he could have avoided this year's double-dip recession, said NIESR's experts.
Delaying austerity until 2014 would have ensured that unemployment kept below 7% throughout the decade, said the report. Instead, the jobless total currently stands at 8.1% and is forecast by NIESR to peak at 8.6% in 2013 and remain above 7% until 2016.
The report forecast world growth slowing to 3.3% this year and 3.7% in 2013, with unemployment in some countries rising to levels higher than those of the Great Depression of the 1930s.
NIESR predicted that eurozone "tensions will heighten further", as Germany enjoys above-trend growth while southern Europe remains "in deep recession".
While the report predicted that the euro will survive, it forecast that Italy and Spain will need support and warned "the prevarication of the past four years can no longer continue".
"Central bankers are often fond of saying they have plenty of other weapons in their armoury should it be necessary," it added.
"If this is the case, the current time would seem appropriate to use them."
The GDP growth lost due to austerity measures, according to the report