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
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
peopleMathematician John Nash inspired the film Beautiful Mind
News
Richard Blair is concerned the trenches are falling into disrepair
newsGeorge Orwell's son wants to save war site that inspired book
Life and Style
Audrey Hepburn with Hubert De Givenchy, whose well-cut black tuxedo is a 'timeless look'
fashionIt may be a paradox, but the industry loves it
Arts and Entertainment
The pair in their heyday in 1967
music
Life and Style
fashionFrom bathing dresses in the twenties to modern bikinis
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Abuse - and the hell that came afterwards

Abuse - and the hell that follows

James Rhodes on the extraordinary legal battle to publish his memoir
Why we need a 'tranquility map' of England, according to campaigners

It's oh so quiet!

The case for a 'tranquility map' of England
'Timeless fashion': It may be a paradox, but the industry loves it

'Timeless fashion'

It may be a paradox, but the industry loves it
If the West needs a bridge to the 'moderates' inside Isis, maybe we could have done with Osama bin Laden staying alive after all

Could have done with Osama bin Laden staying alive?

Robert Fisk on the Fountainheads of World Evil in 2011 - and 2015
New exhibition celebrates the evolution of swimwear

Evolution of swimwear

From bathing dresses in the twenties to modern bikinis
Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine