UK set for even slower growth, warns NIESR

Economic growth will be weaker than expected this year and incomes per head will fall more sharply, a respected think tank forecast today as Bank of England policymakers meet to decide interest rates.

The National Institute of Economic and Social Research (NIESR) downgraded its forecast for growth in 2011 to 1.4 per cent from 1.5 per cent and predicted that real disposable income will fall by £301 per person.

NIESR's downbeat assessment follows yesterday's surprise announcement of a fall in house prices along with weak bank lending figures. Along with slowing manufacturing growth and figures showing the economy barely grew in the first quarter, the outlook for the economy is almost universally gloomy.

The recent slew of bad news has virtually ruled out an increase in rates from the current record low of 0.5 per cent – a move the market believed was a near certainty earlier this year.

The MPC is trying to balance the need to support the weak economy as austerity measures kick in with prices rising at double the Bank's 2 per cent target rate.

House prices unexpectedly fell in April after two months of strong growth, Nationwide said yesterday. The 0.2 per cent drop means property prices are now 1.3 per cent lower than a year ago.

Nationwide said the market was "fairly static" and that there was no reason to think prices would fall more steeply in coming months.

But NIESR predicted a 4.5 per cent drop in house prices in real terms this year, with further falls averaging 1.5 per cent for the following five years.

NIESR predicted growth will pick up to 2 per cent in 2012 but will only outstrip its trend rate of 2.1 per cent by 2013. Until then, the economy will not truly be in recovery, it said.

Growth will be constrained by the Government's spending cuts and the squeeze on household incomes from higher taxes and inflation.

NIESR increased its forecast for consumer price inflation this year to 4.5 per cent from its January prediction of 3.8 per cent, based mainly on the rising cost of oil. As a result, real disposable incomes will fall by 1.9 per cent, or £301, per head.

Simon Kirby, an economist at NIESR, said: "It is going to feel particularly tough this year and much tougher than last year or the year before. People started feeling the pinch from April when higher national insurance hit their wage packets ."

There were further indications of a weak economy yesterday. Activity in the construction industry slowed more quickly than expected last month, an industry survey showed. The Markit/Cips construction purchasing managers' index (PMI) fell to 53.3 in April from 56.4 in March after the first fall in house building this year. The sharp fall in construction growth followed a bigger than expected fall in manufacturing output in an equivalent survey on Tuesday. Both surveys showed continuing growth but the slowdown is worrying as austerity measures begin to bite.

Sterling hit a 13-month low against the euro after the construction data.

Consumer borrowing weakened as households reined in their finances ahead of tougher times ahead. Bank of England figures showed consumer credit rose by £0.1bn compared with the monthly average of £0.3bn over the past six months.

Howard Archer, the chief UK economist at IHS Global Insight, said: "Consumer desire to get a tighter grip on their finances is a reflection of current very low and falling consumer confidence and is the consequence of an uncertain and somewhat worrying longer-term outlook for the economy and jobs as the major fiscal squeeze increasingly kicks in."

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
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: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor