- The economy, after seeing zero growth in 2012, will grow by 0.7 per cent in 2013 and 1.5 per cent in 2014.
- Consumer price inflation will average 2.4 per cent this year and 2.3 per cent in 2014.
- Unemployment will stabilise at about 8 per cent, and to begin a sustained fall in 2015.
- We expect public sector net debt to peak in 2016–17, at about 85 per cent of GDP.
- GDP will regain its 2008 peak in 2015, but real per capita GDP will not recover its peak until 2018
The UK's underlying economic performance is best described as flat, with zero growth in 2012. The broader picture remains one of persistent economic weakness – GDP is roughly at the same level as two years ago, and remains more than 3 per cent below the 2008 peak. This represents the slowest post-recession recovery in output in the past one hundred years; the economy was only ½ per cent larger at the end of 2012 than it had been in the third quarter of 2010. Indeed, per capita GDP actually fell by 1 per cent over this period; we do not expect it to regain its pre-recession peak until 2018.
Overall, the concern should not be whether or not the economy shrank slightly at the start of 2013 to fulfil the ‘technical’ definition of recession, or whether (as we expect) there is slight growth; but on the broader question of whether stagnation persists throughout 2013.
The poor performance of overall output is in stark contrast to the labour market, where employment is 1 per cent and average hours worked 0.7 per cent higher than in the third quarter of 2010. Rising employment and falling unemployment rates are positive developments, but this poor productivity performance is worrying in its persistence.
Recovery depends upon a resumption of consumer spending, while balanced recovery also requires the resumption of corporate spending and a pick-up in export growth. It remains our view that such a recovery would best be supported by a significant increase in public sector net investment, with looser fiscal policy in the short term while demand remains weak, and radical reform of the financial sector to support lending to the real economy. At the same time, a new and credible fiscal framework should underpin a continued commitment to fiscal consolidation over the medium to long term.
NIESR's detailed forecast is available here (£).