Think-tank expects UK growth pick-up in H2

The National Institute of Economic and Social Research (NIESR) has forecast UK GDP will begin to pick up during the next two quarters but will not reach the government’s 1.7% target.

NIESR expects to see growth of 1.3% for the UK in 2011, mirroring the Confederation of British Industry's forecast earlier this week.

The Institute added growth will accelerate in 2012 to 2%, which will drive inflation below the Bank of England's 2% target.

"The UK economy has been largely stagnant over the past nine months, but we believe GDP growth will pick up in the second half of this year," it said.

"However, this will be flattered by the negative ‘one-off' effects of the second quarter.

"Growth will pick up to reach 2% next year and this will drive the CPI inflation rate to fall from 4.2 % to 1.9% in 2012."

NIESR warned public finances will not improve as quickly as the government hopes, adding short-term fiscal policy needs to be loosened to drive the unemployment rate down, in order to boost growth.

"Public finances will not improve as quickly as the government expects - this is due to weaker growth, in particular weak consumer spending.

"We believe the Chancellor will miss his primary target of balancing the cyclically adjusted current budget by 2015-16 by around 1% of GDP due to the short-term fiscal policy being too tight.

"A modest loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility."