Downward revisions of growth forecasts announced at yesterday’s Budget do not go far enough, according to the National Institute of Economic and Social Research, which predicts growth will only reach 1.5 per cent in 2011/12.
Chancellor George Osborne said in his Budget statement yesterday that the Office of Budget Responsibility has downgraded the growth forecast for 2011/12 from 2.1 per cent to 1.7 per cent and from 2.6 per cent to 2.5 per cent for 2012/13.
But the NIESR says it expects very weak consumer spending growth to drag that down to 1.5 per cent in 2011/12 and 1.8 per cent in 2012/13.
The think tank’s response to the Budget says: “Such poor consumer spending growth is expected because of declining real incomes this year and a weak housing market both this year and next.”
The OBR also said in its economic and fiscal outlook it expects the savings ratio to stabilise at around 3.5 per cent over the next five years. The NIESR says it expect continuing retrenchment of household finances to push this up to around 7 per cent.