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Economy faces moderate growth

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The UK economy is set for another year or so of modest growth, it has been predicted.

In its latest quarterly economic review, the National Institute of Economic and Social Research (NIESR) has forecast that British GDP will expand by just 1.4 per cent in 2011. That is 0.3 per cent less optimistic than the predictions made by the independent Office for Budget Responsibility.

According to the NIESR, 2012 doesn’t look much better. The economy is expected to see growth of only 2 per cent next year.

The sombre figures are the result, the NIESR said, of stubborn inflation, higher taxes and reductions in public spending.

The NIESR paper estimates that we must wait until 2013 before GDP hits its trend growth rates once more and regains the energy it last had pre-recession. Consumer spending is expected to decline by 0.6 per cent this year.

The picture is happier on inflation rates. The NIESR believes that the consumer prices index inflation should slip back dramatically next year, peaking at 4.5 per cent in 2011 but then sliding to just 1.9 per cent in 2012.

Simon Kirby, an economist at the NIESR, said: “It will feel particularly bad this year. The private sector will grow this year and next year but it is a very protracted and weak recovery, which doesn’t bode well for pay increases.

“Borrowing needs to be reined in and the deficit needs to come down. But fiscal policy this year is far too tight.”