UK growth to fall short of forecasts, says NIESR

Britain's economic growth will fall significantly short of official forecasts as government cuts take their toll, according to a leading think-tank.

Soaring oil prices combined with the coalition's austerity measures will knock 0.8% off Britain's economic growth this year, dragging GDP below the official estimate, the National Institute of Economic and Social Research (NIESR) said.

It estimates growth will be only 1.4%, instead of a possible 2.2%.

This is less than the Office for Budget Responsibility's latest forecast of 1.7%, although economists expect the OBR will revise that forcast after official figures last week revealed the economy grew by only 0.5% in the first quarter of the year.

NIESR said that growth this year would also be constrained by the squeeze on households from higher taxes and inflation. Real disposable incomes will fall by 1.3%, after a 0.8% decline last year

Consumer price inflation will reach 4.5%, up from 3.3%.

Meanwhile, the NIESR warned the government would not be able to raise enough through taxes to hit its borrowing targets, even if the Chancellor George Osborne's package of spending cuts was delivered.

As the economy struggles to recover, borrowing will fall to 3.6% of GDP in 2015/16, rather than the 1.5% projected by the OBR, meaning that the current budget is likely to run a deficit of 2.2% of GDP in 2015/16, compared with the OBR forecast of 0.2%.