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Gloomy forecast for UK's economy
Britain's GDP will shrink by 0.5% in 2012, a leading economic think-tank has forecast 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 the economy 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 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 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 £239 billion 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 scenarios suggest that the recession in 2012 could have been avoided had fiscal tightening measures been delayed," said the report." Our estimates indicate that the cumulative loss of output from early consolidation accumulated over the period 2011-21 amounts to £239 billion in constant 2010 prices. This is equivalent to 16.5% of 2010 GDP or about 1.3% of total output over the entire period."
Niesr said that UK output had "effectively been flat" over the past two years, largely as a result of domestic economic factors, with the effects of the private sector paying down debts "exacerbated" by the Government's fiscal consolidation programme and a "dysfunctional" financial system.
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.