Consumer Spending Unlikely To Recover Fully For Five Years
Consumer spending will not recover to its pre-recession levels for another five years, according to a forecast published today by the National Institute for Economic and Social Research (NIESR).
The UK economy will expand by just 1.3% this year, despite the "very robust growth" in the second quarter of this year.
Economic growth this year has so far been supported by government current and capital spending and a slowing pace of de-stocking.
Disappointing net trade figures from the first quarter of this mean that net trade is a drag on GDP growth for the year as a whole, said NIESR.
From next year the contribution of consumer spending will be less than in the decade before the recession. Per capita consumer spending will not recover its pre-recession peak until 2015.
Growth will be more dependent on the contribution of net trade, while public spending will pose a drag on economic growth for longer than had previously been expected.
Public sector spending cuts, said NIESR, will subtract from economic growth in every year from 2011 to 2015.
Consumer price inflation will average 3% this year and 2.7% in 2011. The increase in the standard rate of VAT at the start of next year will keep the rate of inflation above target through next year. It is only in 2012 when the rate of inflation will fall below target, to an average of 1.4% per annum.
The coalition government's more aggressive fiscal consolidation programme will result in public sector net borrowing falling more sharply than on NIESR's previous forecast.
Net borrowing will moderate from £153bn (10.9% of GDP) in fiscal year 2009-10 to £51.3bn (2.8% of GDP) in 2015-16.
Tax and spending plans in the Emergency Budget will reduce the economic growth rate by 0.4% in 2011. This has raised the probability of a decline in output in 2011 as compared to 2010 from 14% to 19%.
Consumer spending will not recover to its pre-recession levels for another five years, according to a forecast published today by the National Institute for Economic and Social Research (NIESR).