After George Osborne's austerity Budget in June, many doom-mongers predicted that the UK was now in much greater danger of slipping back into recession - the dreaded double-dip. But according to the pointy-heads at the National Institute of Economic and Social Research (a top economic think-tank), it actually made relatively little difference: it reckons there's now a 19% chance of recession in 2012, compared to 14% under the previous Government's plans. Not ideal, but not too alarming either. Good news for the coalition, particularly since the NIESR thinks UK growth will be better than expected this year. However, it also reckons things will be worse than expected in 2011 and 2012 - and unfortunately for homeowners, that house prices will fall over the next five years. There's a cheerful thought to accompany your lunchtime sarnie...
The NIESR (whose forecasts are pretty well-regarded, as these things go) does think the measures announced in the Emergency Budget will have a negative impact on growth - but only by something like a tenth of a percent (which is barely more than a rounding error). So it's clearly not buying the doomsday scenario some nay-sayers are peddling. 'It does raise the risk, but not by much', one of its excitable economists told the FT. And although it reckons last quarter's unexpectedly-high growth figure of 1.1% was a temporary blip (it's predicting a measly 0.1% for the current quarter), it still thinks our economy will grow 1.3% this year. That's ever-so-slightly more than the Office of Budget Responsibility is currently forecasting.
Time for the new austere Treasury team to break out the supermarket own-brand cava, then? Not quite, sadly. For a start, the NIESR reckons the Government is being way too optimistic about growth in future years: it's predicting growth of 1.7% in 2011 and 2.2% in 2012 - way below the official forecasts of 2.3% and 2.8% respectively. Nor is it buying the Coalition's argument that we need to cut the deficit rapidly to save us from higher interest rates. Since Britain is the only large OECD country never to have defaulted on its debt, it says, 'it is very unlikely that the UK will face a Greek-style crisis'. Paying off our debts is a good idea in terms of reducing the burden on future generations, it argues - but there's no massive rush.
Another angle of the report picked up by many of today's papers is the NIESR's verdict on house prices, which is pretty gloomy: it predicts that although they'll rise between now and 2015, in real terms they'll actually fall by about 8%, once you adjust for inflation. That would leave the average homeowner almost £30k worse off. Or to look at it another way, house prices will, in real terms, have collapsed to 2003 levels by 2015. Some will argue that this is a good thing - a long-overdue correction of an over-blown market. But that's no consolation to those left out of pocket, at a time when they'll already be feeling the squeeze on their take-home pay. Then again, economists' five-year forecasts haven't proved terribly reliable lately...
In today's bulletin:
Heat is on British Gas as profits double
Emergency Budget won't tip us back into recession (probably)
Retailers are World Cup winners as sales rise
Labour PFI contracts: 'good value' for taxpayers' money?
Letters from Malawi: What good is a house if there's no one to buy it?