The UK risks a bleak 2012 and falling back into recession as a result of the Coalition’s austerity measures and the crisis in the eurozone, the IPPR has warned.
The Institute for Public Policy Research which advises more than 30 developed countries, said that inflation will fall and the pressure on households’ spending power will end – “at least for those who keep their jobs”.
The respected IPPR’s chief economist, Tony Dolphin, said that during 2011 growth was lower than expected, unemployment higher and public sector borrowing greater.
Dolphin warns that the Government have no real economic policy – “In the short term, economic policy has become a matter of hoping that something turns up – and that is why, for the UK economy, 2012 is unlikely to be a happy new year. As we enter 2012, it seems the word that best describes the outlook for the UK economy is ‘bleak’. The eurozone crisis is unresolved and country after country is being forced to adopt extreme austerity measures that will result in large falls in output.”
Dolphin highlighted the assessments of the Organisation for Economic Co-operation and Development and the UK’s Office for Budget Responsibility (OBR) that “the UK economy is teetering on the brink of a return to recession. These forecasts all come with the warning that things could get a lot worse in the eurozone, and if they do then the UK would fall into a serious recession”.
The OECD has warned that the UK faces a return to recession this winter because of a fresh increase in unemployment, a squeeze on household budgets, government spending cuts and the eurozone crisis.
The IPPR rejected George Osborne’s oft stated argument that the private sector would soak up public sector job losses and says that the dole queues will lengthen to more than 9% of the working population as growth slows.
The OBR, whose forecasts are used by the Treasury, has a similarly bleak labour market outlook. It sees unemployment rising from 8.3% now to 8.7% in 2012. At the time of the government’s autumn statement on the economy, the independent body slashed its growth outlook as well. It now expects growth of just 0.9% this year and an even weaker 0.7% next year, compared with a previous forecast of 2.5%.
The IPPR says that the government must take more account of growth. “When growth is strong, tightening can be speeded up, but when growth is weak, as now, then tightening should be slowed down,” the IPPR argues.
It argues for the creation of a national investment bank.
Dolphin said “Going into 2012, the risk is that talk of austerity at home and crisis in Europe will dampen spirits to such an extent that the economy drifts into recession.”If the economy does find itself back in recession, it is likely to have to find its own way out of it. There are ultimately only three solutions: the government decides to increase public spending, or overseas demand for UK output increases substantially, or UK households and companies are given some reason to spend more. The first is not going to happen, the second is extremely unlikely, and so we left with the third. But with no prospect of tax cuts or lower interest rates, it is not clear what in the short term the catalyst for more spending by the private sector will be.”