Government spending cuts and disappointing net trade figures will limit economic growth in Britain to 1.3 per cent this year, despite the surprise spring surge in the second three months of this year, according to the independent National Institute of Economic and Social Research (NIESR).
In the first comprehensive independent economic analysis since George Osborne’s emergency Budget, the think tank said it believes Britain will just about limp out of recession but lag behind the global economy which is expected to expand by 5 per cent in 2010.
This country’s gross domestic product grew by 1.1 per cent during the three months to June 30, according to the Office for National Statistics.
This was the strongest growth since the first quarter of 2006 and caused a wave of optimism as it showed the economy growing almost twice as fast as most economists had expected in the second quarter.
But the NIESR analysis said economic growth this year has so far been driven by Government spending – both capital and current expenditure –and said the path ahead will be “bumpy”.
Consumer spending will contribute less next year than in the decade before the recession, with per capita spending not expected to recover its pre-recession peak until 2015. Growth will now depend more on the contribution of net trade, while the £100 billion public spending cuts will pose a drag on growth in every year from 2011 to 2015, longer than expected.
“Disappointing net trade figures from the first quarter of this year mean that net trade is a drag on GDP growth for the year as whole”, it says. It forecast for the third quarter of this year growth of 0.1 per cent followed by 0.3 per cent to year’s end.
“We should not rule out the chances of negative quarters. The plans in the budget will inevitably hold growth back somewhat”, said NIESR research fellow Simon Kirby.
The NIESR forecast follows the Treasury Select Committee’s own admission that George Osborne’s Emergency Budget cuts of £100 billion from public spending have caused “a slight increase” in the chance that the British economy will contract again over the next year.
Labour and some Liberal Democrat MPs on the committee said they were “concerned” that when the effects of the Budget are measured as a share of net income, “the poorest fare slightly less well than middle-income group”
