The UK economy looks set to grow by just 1.2 per cent in 2011 as the forces for acceleration are reined in by downward pressures, according to new research.
The Institute of Directors’ economic forecast for 2011 believes that after some growth this year, Britain’s economic performance will flatten out in 2011.
The IoD said there is too much doom and gloom surrounding the Comprehensive Spending Review, but there also needs to be greater realism about weakness elsewhere in the economy. If the IoD forecasts prove correct, the Chancellor may need to find more spending cuts or tax rises to meet his budget deficit targets.
John Rider, chairman of the IoD West Midlands, said: “After an extraordinary financial crisis, fiscal explosion and the introduction of unconventional monetary policy the level of economic uncertainty remains very high.
“The effectiveness of traditional forecasting models is open to very serious doubt when they have little or no capacity to incorporate the effects of quantitative easing. The new economics do not fit the model and in such circumstances forecasting becomes what it always has been, an issue of feel and judgment.”
He said the IoD had consistently argued that economic recovery would be relatively slow and smooth. However, there could be a few quarters of stronger growth where the economy grows as expected followed by a period when the recovery flattens out.
The evidence so far in 2010 suggests this might be happening, with GDP growth in the second and third quarters on a par with a normal cyclical upturn. However, things look to be levelling off, due to factors like the legacy of the financial crisis, weak money supply growth, a fiscal squeeze and a move for consumers to pay off credit card bills and save rather than go out spending.
Mr Rider added: “The crucial point underpinning both recovery cycles is that there are significant forces accelerating the economy forward, but they are competing with a very powerful set of decelerating influences. We do not think the decelerating forces will lead to a double-dip recession – but the risk is there especially if business and consumer confidence begins to slide.”