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The UK economy faces years of misery, a leading think-tank warned today, with the housing slump lasting until 2012 and unemployment peaking at three million in 2011.
A gloomy report by the National Institute of Economic and Social Research (NIESR) said house prices will resume their decline because recent gains were driven by a lack of supply not strong demand.
“There has been talk of stabilisation and some recovery in the housing market, but we don't think this is the case,” said Niesr economist Simon Kirby. “We only see growth in the housing market returning in 2012.”
It also says unemployment will rise for another two years, peaking at three million, or nearly one in 10 of the workforce, in mid-2011. The jobless total is currently 2.38 million, or 7.6%.
The grim forecasts for the housing market and unemployment came as the Niesr warned of a feeble economic recovery in the UK in its latest quarterly report as banks continue to ration lending to businesses and households.
Sterling fell 1.34 cents against the dollar to $1.6325 and 0.55 cents against the euro to �1.1512, as traders digested the bleak outlook and concerns over rising Government debts.
The Niesr forecasts the economy to shrink by 4.3% this year before growing by a modest 1% next year and 1.8% in 2011 — far weaker than the Government's “optimistic” outlook.
“We expect to see a continued contraction in consumer spending and private sector investment,” said Kirby. “The weakness of bank lending remains as a concern and it is necessary that it strengthens if the economy is to return to sustained growth.”
Figures on Friday are likely to show gross domestic product fell again in the second quarter of 2009 having slumped 2.4% in the first quarter — the worst performance since the General Strike of 1926, according to the Niesr.
It forecast a second-quarter decline of 0.4% followed by contraction of 0.1% in the third quarter, the sixth decline in a row. It pencilled in growth of 0.5% in the final quarter of the year but warned there will be no return to strong growth until 2013.
The scale of recession means further deterioration of the already battered public finances, the Niesr warned.
It said borrowing — due to peak at a record £175 billion this year on Treasury estimates — could still be running at £160 billion in 2013-14. That is £63 billion or 65% more than the £97 billion outlined by the Chancellor in the Budget.
The ballooning deficit will send the cost of servicing government debt spiralling from £25.6 billion this year to £50.7 billion.
Bank of England deputy governor Charlie Bean today urged the Government to bring the public finances back under control, through tax rises and public spending cuts.
“As the economy starts to recovery it will be necessary to put the public finances on a sustainable footing,” Bean said.
Reader views (7)
Nobody wants to be optimistic more than me.I have the attitude that I am here once-and I want my time to be as easy as possible-I want my labours to produce the maximum amount of profit for me possible vis-a-vis effort.
Having said that....I absolutely despair that this complete clown Brown, and his entourage, should be manning the helm as this country navigates dire straights.
Purely out of self interest, i have followed finacial events over the last six years.I hear the clamour for green shoots,and sparks of financial optimism...but as for my meagre opinion I offer you this-
Britain is technically bankrupt
It has nothing left to sell except the forestry commision,ordinance survey etc-all the good stuff has gone.
It has no commodities,no gold left,just an illusion of wealth reflected in the mirage of privately owned property.
It is being deserted by all those whom are natural wealth producers/adroit employers/those in a financial position whom 'can'
It is an over-regulated commerce crushing antithesis of everything most of the sensible populace really desires-they the populace-or 'hoi polloi' if you like to call them truly in their hearts want.
give me a glimmer of hope-because all I see based on the evidence, is a Britain entering a transformation into an economy simmilar to a pre glasnost poland.
- Antony Graham, southport NW England, 22/07/2009 23:23
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Charles Bean said what? 'When the economy starts to recover...'
Hahahahahahahaha.
He still doesn't understand whats happened, does he? And how much taxpayers funding does he get?
- Twizzle, Isle of Wight, 22/07/2009 22:09
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The sad fact is that we are all bout to pay the price for the party that has just ended, no matter if we attended or not.
After the next election tax must rise, along with interests rates, to pay for public spending and restoring bank profitabilty.
Expect dramatic falls in house prices, that's a journey that has hardly begun.
- Expat, London, 22/07/2009 21:37
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There are elements who want to defer the recovery until just before the election, then Mr Brown's career would then rise out of the ashes of the recession, or not.
- John, Llandudno, Wales, 22/07/2009 13:23
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Charlie Bean today urged the Government to bring the public finances back under control, through tax rises and public spending cuts" Well that's a bit rich coming from a banker who is a member of the profession that caused this mess and then took billions of pounds of tax payers money to bale out the bankers and reward them for there greed,And now we have to pay more again.Jo public you have been well and truly suckered yet again.
- Kev, London-UK, 22/07/2009 13:21
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But don't worry, at least the thieving banksters who looted six trillion from us won't be seeing any hardship. They're laughing their heads off at us for our stupidity.
- Neil, London, London UK, 22/07/2009 12:53
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Mr.Bean, Two words that will be on everybodys lips come November 'Double Dip'
- Leonard Lillywhites, N.London, 22/07/2009 11:44
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