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Britain's economy to be flat in 2012
Friday, 4th May 2012 09.35am

Britain's economy will be flat this year before entering a period of growth in 2013, a leading think-tank said today, reiterating its call for the government to get the economy back on a firmer footing by providing a short-term boost.

The National Institute of Economic Research (NIESR) marginally revised up its 2012 growth forecast to zero from the -0.1 percent it predicted in February, mainly due to an improved outlook for private sector investment and consumer spending.

But the institute said there were significant downside risks to their forecast, especially in the near-term, such as the rise in oil prices and the ongoing euro zone crisis.

Their view compares with the government's Office for Budget Responsibility's (OBR) March prediction that the economy will grow by 0.8 percent in 2012.

Britain's economy fell into its second recession since the financial crisis after contracting by 0.2 percent in the first three months of 2012, official data showed last week.

"Our monthly estimate of GDP suggests the level of economic activity in the economy in March 2012 was the same as in September 2010," NIESR said. "This clearly does not constitute a sustained recovery."

In contrast, the BoE said in the minutes to its April Monetary Policy Committee (MPC) meeting that a wide range of business surveys pointed to moderate underlying growth.

NIESR's director Jonathan Portes, who has long urged the government to ease its austerity drive, said spending cuts constituted a big drag on the economy. "There is clearly a substantial negative impact on GDP in the recent months from the very large cuts we've seen in public sector net investment," he said. "Public sector net investment (was) cut by something like a quarter in just the last year alone, so the case for restoring those cuts is very strong and for investing more in the short-term in infrastructure projects and in housing in particular." NIESR reiterated its view that while the government should not deviate from its medium to longer-term goal of fiscal consolidation, it should boost net investment in the short-term. The pace of deficit reduction is a contentious political issue, with the opposition Labour Party arguing that the spending cuts and tax rises imposed by the government have pushed the economy back into recession. The institute predicted Britain's economy would grow by 2 percent in 2013, down from its February estimate of 2.3 percent. ( C) Reuters

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