Policymakers have little idea how to boost growth, warns Institute for Public Policy Research thinktank
The UK economy could suffer a “groundhog year” in 2013, a left-of-centre thinktank has warned, with little or no growth amounting to a rerun of last year’s economic performance, when GDP is thought to have fallen 0.1%.
Other economists have predicted Britain will tumble into an unprecedented triple-dip recession and has a strong chance of being stripped of its prized AAA credit rating.
The Institute for Public Policy Research (IPPR) said consumer and business morale had been dampened by talk of years of austerity and uncertainty over the eurozone crisis.
“It seems that time has stood still for the last 12 months,” said Tony Dolphin, IPPR chief economist. “Policymakers appear to have little idea how to boost growth in the economy and are left hoping that the news will get better. The risk is that 2013 could be groundhog year for the UK economy.”
He said the government was counting on “something just turning up” to lift the economy. The government’s official economic forecaster, the Office for Budget Responsibility, expects the UK economy to grow by 1.2% in 2013. But the IPPR said such growth could only be achieved if consumers started spending more, which would require them to take on more debt. Dolphin said: “This would be a significant change from the trend of the last four years, and is very unlikely.”
His gloomy outlook was echoed by the Centre for Economics and Business Research, which said the UK economy had a 50/50 chance of falling into a triple-dip recession next year. The consultancy said household budgets would continue to be squeezed. People would be underemployed rather than unemployed and would suffer another year of falling incomes in real terms, with very slow pay growth failing to keep up with inflation.
The split between the UK and the European Union split could also become “politically serious” this year, said Douglas McWilliams, CEBR chief executive, . “Oddly, rather than the other way round, it could be that the prospect of a UK exit triggers the euro break-up.”
A poor economic performance in the UK would put public finances under pressure and raise questions over Britain’s ability to pay back its debts, warned economists. Howard Archer, of IHS Global Insight, said he strongly suspected at least one major credit-rating agency would strip the UK of its top rating in 2013. “The loss of the UK’s AAA rating would clearly be seen as an embarrassment for the government, given the emphasis it has frequently placed in the past on keeping [it],” he said.
There were fresh calls for the coalition to intervene to stimulate the UK economy. The IPPR said the government should boost demand in the economy, invest further in infrastructure projects, establish a British Investment Bank modelled on the French one, and guarantee everyone who had been out of work for a year a job on the minimum wage in a charity or in local government.
Top of the wish-list for the British Chambers of Commerce was access to finance for growing firms. It welcomed the idea of a British Business Bank but asked for a firm timetable for its creation. “There is an urgent need for a patient business lender to give innovative, new and growing businesses, as well as those businesses in recovery, access to the levels of finance they need to grow and evolve,” it said.
The CEBR did predict some bright spots for the world economy in 2013, saying Asia could bounce back a bit after sputtering in 2012. “Since the political succession was sorted out in China they have been pushing the levers in favour of economic growth. Structural and long-term problems remain but these may be overtaken in 2013 by extra demand from China.
“And Japan, with a new aggressive government, is likely to try reflation before anything else,” said McWilliams. In China a survey of private factory managers indicated activity in December had reached its fastest pace since May 2011. The HSBC Purchasing Managers Index rose to 51.5, well above November’s 50.5 – with a reading above 50 signalling expansion.