Economists tell Chancellor to change course

Leading think tank warns today that George Osborne will miss the borrowing targets he has set himself

The country's leading economic think tank warns today that the Chancellor is cutting too fast – and that he will still miss his primary aim of balancing the budget by 2015.

The National Institute for Economic and Social Research said that there will be "no meaningful recovery this year", and that "the public finances will not improve as quickly as the Office for Budget Responsibility expects". Weaker growth, and in particular weak consumer spending in the short-term, are behind this, the think tank warned. It also said that further spending cuts now would only make matters worse, and that some cuts should be postponed.

"Public sector borrowing will shrink by only 1 per cent of GDP in 2011-12," the NIESR said. "The Chancellor will miss his primary target of balancing the cyclically adjusted current budget by 2015-16 by around 1 per cent of GDP.

The warning comes the day after the IMF said in its latest report on the UK that there are still "significant" risks to inflation, growth and unemployment with "turmoil" in the eurozone adding to the danger the government would have to react. While it backed the Government's austerity programme as "appropriate", if conditions deteriorated then "significant loosening of macroeconomic policies" would be needed, possibly including a temporary cut in VAT, as the shadow chancellor, Ed Balls, has urged.

The NIESR report echoed those calls. "The Chancellor has time to address this and further consolidation should not be introduced now," it said. "Indeed, it remains our view that in the short-term, fiscal policy is too tight, and a modest loosening would improve prospects for output and employment with little or no negative effect onfiscal credibility."

These bleak assessments – and a run of weak economic data including GDP growth of just 0.2 per cent in the second quarter – add to the pressure on the Bank of England's Monetary Policy Committee to launch another round of quantitative easing, the direct injection of money into the economy. The MPC will announce its decision at noon tomorrow.

Like the IMF, the NIESR sees the weak state of the property market and the indebtedness of many households as a significant risk to their standard of living and wider economic stability. A half percentage point hike in interest rates, said the NIESR, would knock a third of a percentage point off real income growth next year – significant when wage growth is falling so farbehind inflation and tax rises. The economy will expand by 1.3 per cent this year, accelerating to 2 per cent per annum in 2012, it predicted. The CPI inflation rate will fall from 4.2 per cent per annum this year to a below-MPC-target 1.9 per cent in 2012, it added.

One brighter spot identified by the NIESR is the "remarkable" growth of employment in the circumstances,confirmed in a separate survey by the Recruitment and Employment Confederation today. Employment is now only 1 per cent off its pre-recession peak, according to the REC/KPMG Report on Jobs. Staff appointments increased at subdued pace in July, the study shows, with "modest rises in permanent placements and temporary billings". However, demand for staff is growing at its slowest pace in eight months.

Encouragingly for the MPC, there is still scant evidence of inflation fuelling successful pay demands; growth has quickened but remains "muted" and below the survey's long-run average.

However, the volatile construction sector is shedding staff, the Chartered Institute for Purchasing and Supply said yesterday, though building activity "expands at a solid pace".

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
Chuck Norris pictured in 1996
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'