Bloomberg News

Niesr Says U.K. in a Recession as It Forecasts 2012 Contraction

February 05, 2012

Feb. 3 (Bloomberg) -- The U.K. economy has slipped back into a recession and will grow less than previously forecast over the next two years, the National Institute for Economic and Social Research said.

Gross domestic product will fall 0.2 percent this quarter after declining by the same amount in the three months through December, the institute said in a report in London today. It forecasts that the economy will shrink 0.1 percent this year and grow 2.3 percent in 2013, compared with previous projections in October for growth of 0.8 percent and 2.6 percent respectively.

Bank of England policy maker Adam Posen said yesterday there is an argument for officials to expand their so-called quantitative easing program by 75 billion pounds ($119 billion) next week. Niesr, which said there are “downside” risks to the U.K. outlook, cut its forecasts for global growth and said the euro area faces a “mild recession” as leaders struggle to end the region’s debt crisis.

“The flat economy is only temporary, but that is dependent” on “decisive action” in the euro area, said Simon Kirby, a senior research fellow at Niesr. “Risks are still weighted to the downside.”

Niesr, which sees the U.K. economy growing 0.1 percent in the second quarter of 2012, revised its unemployment forecasts. It now sees the jobless rating averaging 8.9 percent this year and 8.5 percent in 2013, compared with 8.7 percent and 8.2 percent previously.

Chancellor of the Exchequer George Osborne should consider a short-term stimulus to support the economy, according to Niesr. Jonathan Portes, director of the institute, said the government should spend at least 15 billion pounds on infrastructure programs and cut National Insurance contributions.

The global economy will expand 3.5 percent this year and 4 percent in 2013, Niesr said. The 2012 estimate is between 0.75 percentage point and 1 percentage point below what the group would consider trend growth, so could be described as a “world recession,” Niesr senior research fellow Dawn Holland said.

--With assistance from Gonzalo Vina in London. Editors: Fergal O’Brien, Eddie Buckle

To contact the reporter on this story: Scott Hamilton in London at

To contact the editor responsible for this story: Craig Stirling at

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