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UK economy has 50/50 recession risk, says Niesr

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There is a 50 per cent chance that the UK economy will return to recession before 2013, according to the latest forecast by the National Institute of Economic and Social Research.

New analysis by the independent research organisation suggests that the UK economy will expand by 0.9 per cent in 2011 before falling to just 0.8 per cent in 2012. It also predicts that “robust growth” will not be seen until 2013.

The institute warns that a sharper-than-expected inventory cycle could push the country back into recession and says there is a 50% chance of this occurring over the 2011-12 period.

This assumes that Niesr’s baseline scenario of a successful resolution to the eurozone debt crisis. However, if European leaders “muddle through” the crisis, the chance of another UK recession could hit 70 per cent.

“The economy will not return to its pre-recession peak until the end of 2013; this would be the slowest recovery since the end of the First World War,” the group says.

In addition, Niesr expects consumer price inflation to ease from its current 5.2 per cent to 2.3 per cent in 2012, before falling below the official 2 per cent target by the end of the year. But the group tips unemployment to rise from 8.1 per cent to 8.9 per cent by the close of 2012.

Niesr has also published its global economic forecast, which says the world economy will expand by 4 per cent in both 2011 and 2012. This is the same estimate recently given by the International Monetary Fund in its latest World Economic Outlook.

“Global economic prospects have deteriorated markedly in recent months. Much of this is due to the heightened uncertainty surrounding the eurozone,” the forecaster says.

The institute’s global growth assumptions are based on a successful solution to the eurozone crisis.

It warns that there are “clearly substantial” risks for this outcome, going by past experience of the crisis’ handling, the nature of the bailout measures suggested by the international community and Greece’s surprise referendum on the deal.

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