It’ll take five years for the UK economy to recover fully from the effects of the credit crunch, according to the National Institute of Economic and Social Research. The think-tank, which is predicting a 4.3% drop in GDP this year, thinks per capita income won’t return to pre-recession levels until March 2014. It also scotched any talk of a recovery in the housing market, and predicted that the unemployment rate will keep rising for another two years. Cheery stuff – particularly since if we’re all poorer, that means the Exchequer will be too…
The gloomsters at the NIESR have been doing their sums on UK GDP, and the results aren’t pretty. It reckons the 2.4% drop in output in the first quarter of 2009 was probably the worst performance since the 1926 General Strike, and it’s now expecting a 4.3% slump for the year as a whole. With weedy growth of 1% in 2010 and 1.8% in 2011, it’ll probably be 2012 (after the Olympics) before GDP gets back to the pre-recession growth levels of early 2008. And since the population is still rising, GDP per head won’t actually return to pre-recession levels until March 2014 – unless of course we see an exodus of people to happier climes (which is by no means impossible).
The NIESR also takes a pretty dim view of the housing market’s prospects. It thinks the recent gains have only come because demand has briefly outstripped supply – those people who have been hanging on for the bottom of the market are trying to buy, while most potential sellers are reluctant to deal for the same reason. Assuming this balances out fairly quickly, the think-tank reckons we won’t see real growth again until mid-2012. And in line with most commentators, it doesn’t expect the employment figure to start going up again until mid-2011. This will probably mean a continued contraction of consumer spending, not to mention business investment.
Apart from pouring some very cold water on any talk of green shoots, this also has a big implication for the public finances. Government debt is already at a record £800bn, and a slow recovery would mean a smaller tax take than the Treasury’s expecting – indeed, the NIESR thinks we’ll still be borrowing £120bn a year in five years’ time. This will leave us in a fairly dismal fiscal position – particularly since the Government seems entirely unwilling to produce a plan for balancing the books, presumably because it will involve unpopular tax hikes and spending cuts. So it’s no wonder the pound has plummeted against the euro and the dollar again today.
We don’t recall early 2008 seeming like halcyon days at the time – but it’s apparently as good as we’re going to get for a while...
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