According to the National Institute of Economic and Social Research (NIESR), the British economy faces almost a 50% chance of sliding into a double-dip recession in the next year. These figures stand even if the European leaders find a way to solve the eurozone’s debt crisis, says NIESR.
The outcome is expected to be much worse if decisive action is not taken on the eurozone problem, as policymakers “muddling through” the process would raise the chances of a recession to 70%.
The think tank predicts that the UK’s gross domestic product (GDP) will grow by only 0.9% this year and 0.8%, with the chances that this forecast could be slashed again. Predictions were already slashed in August due to poorly-performing industrial sectors, as it was once thought that the economy could climb 1.3% this year and 2.0% the next.
NIESR’s director, Jonathan Portes, said that the gloomy forecasts are dependant upon the weak demand from consumers and investors, but that the biggest risk remains the euro zone debt crisis.
In an attempt to get their house in order, European leaders announced a bailout package to help Greece with huge debts and end the bloc’s two year debt crisis. However, a surprise move from Athens calling for a national vote on whether or not to take the bailout has fanned the fears of the debt solution crumbling.
Greece has called for a vote because of strong protest against austerity measures from the population at large.
The UK has embarked on its own tough austerity drive since the start of the coalition government’s term, but the stagnant economy is raising questions as to whether austerity is the right economic policy.
While Chancellor George Osborne acknowledged on Tuesday that the country must weather tough times ahead, he reiterated his commitment to lowering the country’s budget deficit.
However, NIESR chief Portes has reiterated the think tank’s criticism of the government’s policy in light of the recent recession predictions. Portes stated that the government’s tough austerity programme has had a negative impact on the economy, and that they should “loosen policy moderately to help growth.”
Still, NIESR has predicted that the government is on track to run a surplus with its current budget by 2016-2017.
Other positive news has come this week, as the Office for National Statistics reported on Tuesday that the economy grew 0.5% last quarter, hitting a two-year high. Despite this, economists forecast weaker growth for the months ahead.