|The UK’s “double-dip” recession could well be revised away by economists - but we will not enjoy a proper recovery until 2015, a leading forecaster warned, calling for a £30bn boost to spending.
After the economy dodged a triple-dip into recession with growth of 0.3pc in the first quarter of 2013, the National Institute of Economic and Social Research said recent revisions to official data meant even its double-dip hangs on the “most modest” of falls in output.
NIESR, however, said short-term swings could not hide the fact that the UK economy has been “stagnating” for two-and-a-half years. The Chancellor should use next month’s comprehensive spending review to unveil a targeted infrastructure investment which could help kickstart a flatlining economy, it said.
Its call came as the monthly PMI survey for manufacturing showed the sector shrank less than expected in April, sending the pound to an 11-month high aagainst the dollar. The index read 49.8 for April, up from 48.6, where anything below 50 signals a contraction.
Stephen Gifford, the CBI’s director of economics, said there were “signs of stabilisation in the manufacturing sector, with companies expecting a pick-up in business over the next few months”.
None the less, the economy will grow just 0.9pc this year, NIESR forecast, with the UK’s net trade subtracting from growth as eurozone trading partners keep struggling.
The forecaster does not see the economy enjoying a technical recovery – above trend growth – until 2015, when it is predicted to expand by 2.1pc. In terms of gross domestic product (GDP) per capita, that will not recover its pre-recession peak until 2018, it forecast.
Simon Kirby, an economist at NIESR, said: “We can’t even begin to talk about recovery yet, that comes in 2015.”
By then, consumer spending, crucial to an economic turnaround, will get a boost as average wages finally start to outpace inflation in 2014 and 2015, meaning people are no longer seeing “real” wage cuts, the think-tank said.
In the near-term however, it expects headline inflation to pass 3pc as tuition fee increases continue to be felt, while it sees better-than-feared unemployment figures are hiding employees’ inability to work as many hours as they want.
Identifying the major problem with the UK economy as a lack of demand, the think-tank reiterated its call that the government boost infrastructure spending, suggesting it spend an extra 2pc of GDP a year.
Jonathan Portes, director of NIESR, said deciding to boost investment in “housing, roads, schools and so on” should be an easy economic policy decision, as the UK can currently borrow at ultra-low interest rates in the debt markets. “You can now finance that for effectively nothing,” he said.
The CBI meanwhile called introduce a tax incentive for small and medium-sized exporters to give them a “leg up” into new markets.
For the global economy, NIESR forecast growth of 3.3pc this year and 3.7pc in the next, “still below trend”. China should overtake the US as the world’s largest economy by 2017, it predicted.