By Richard Johnstone | 5 November 2013
The National Institute of Economic and Social Research has revised up its growth projections for the UK economy this year and next, driven by an increase in consumer spending.
In its quarterly National Institute Economic Review, NIESR stated that UK output was likely to expand by 1.4% in 2013, and then by 2% over 2014. Both these figures have been revised up from of 1.2% and 1.8% forecast in August.
The report also stated that unemployment would fall gradually from its current level of 7.7% to about 7.4% by the middle of next year.
Today’s growth prediction is more than double the 0.6% gross domestic product growth predicted by the Office for Budget Responsibility in its Economic and fiscal outlook, published at the Budget in March. This will be updated by the OBR at the Autumn Statement on December 4.
The improvement comes as a result of a calmer outlook in the eurozone, and ‘a judgement that increased activity in the housing market will spill over into real economic activity, in the form of additional consumer spending’, the review stated.
However, it added that – although increased consumer spending growth was necessary for the UK recovery – it would not be ‘balanced’ without additional output from manufacturing industries.
Despite the upgrade, the institute estimated that economic output would not return to the level seen before the financial crisis until early in 2015. Even then, output per head will still remain below the 2008 peak.
Also in the analysis, NIESR stated that the public sector deficit will fall only slightly this year, as a percentage of GDP, but this will accelerate in the following years. Therefore, the government would likely balance the current budget in 2017/18. Once this target has been met, Chancellor George Osborne has pledged to achieve an absolute surplus in the public finances by 2020.
