Think-tank cuts UK growth forecast
A leading think-tank has urged the Chancellor to revise his deficit-busting measures after making another cut to its forecast for UK growth.
The National Institute of Economic and Social Research (NIESR) expects GDP to rise by 1.3% in 2011, its second downward revision this year as consumer spending falls by more than previously thought.
In its last forecast in May it predicted growth of 1.4% but it said that weaker spending will "hinder any meaningful recovery" this year.
NIESR repeated its call for "a modest loosening in fiscal policy" to improve prospects for output and employment.
Shadow chancellor Ed Balls has recently criticised the Government for cutting too far and too fast and has called for VAT to be reduced back to 17.5%.
NIESR believes Chancellor George Osborne is set to miss his target of eliminating the budget deficit by 2015/16 as tax revenues are hit by the weaker spending and growth.
But it said he could loosen policy in the near-term to stimulate growth without losing credibility and would still have time to narrow the gap closer to the deadline.
The think-tank forecast that global growth will decelerate to 4.5% in 2011 from 5% the previous year following the tsunami in Japan and a slowdown in the US.
Angela Eagle, Labour's shadow chief secretary to the Treasury, said there is growing evidence that George Osborne's "rash plan" to reduce the deficit is not working and called on the Government to build more affordable homes as well as reversing the VAT rise.
She added: "The deficit needs to come down in a steady and balanced way, but trying to go too far and too fast and with no plan for growth risks a vicious circle."