UK to enter recession in 2012, warns Niesr

The UK is set to enter recession in the first half of 2012, the National Institute of Economic and Social Research has warned.

The think tank says it expects the economy to shrink by 0.1 per cent in 2012 and has called on the Government to temporarily ease spending cuts to promote growth.

Recession is traditionally defined by an economy recording two consecutive quarters of economic contraction. Official figures in January showed the UK economy shrank by 0.2 per cent in the final quarter of 2011.

Niesr has added that it expects the UK economy to grow by 2.3 per cent in 2013.

Niesr says: “We forecast a return to technical recession in the first half of this year, as households continue to retrench, credit conditions remain tight, and businesses are reluctant to invest given uncertainty about both domestic and foreign demand.”

The think tank also said that inflation would fall sharply to 2.2 per cent this year and 1.4 per cent next year, however, it has warned that unemployment could reach 9 per cent in 2012 and will remain above 7 per cent in 2014.

Niesr has forecasted global growth of 3.5 per cent for 2012.

It says: “Growth will accelerate to 4 per cent in 2013, representing a downward revision of about half a percentage point in each year compared to our last forecast.”