Economic expansion will be 'moderate'

Wednesday 3rd February 2010

A leading thinktank has predicted the country's economy will expand at a 'moderate tempo' during the next two years.

The National Institute of Economic and Social Research (NIESR) said unemployment could continue to rise, peaking at some three million Brits out of work.

But in a separate report from KPMG and the Recruitment and Employment Confederation (REC), analysts have said the labour market is making a recovery, just at a gradual pace.

"The growth in people getting permanent jobs eased in January but still remained positive overall. The number of vacancies reported by recruitment businesses also accelerated at the sharpest rate since July 2007, suggesting that we are now on the long road to recovery," said REC chief executive Kevin Green.

"The labour market is out of intensive care but it is still in a fragile state."

In its forecast for the year ahead, the NIESR said economic growth could be weaker than the government has predicted, with the thinktank warning that after its recent pause, unemployment will rise again, to 9.2 per cent in 2011.

"Unemployment has risen by less than seemed likely given the severity of the downturn," said the NIESR. "But employment has fallen by more than expected once we take account of the adjustment of real wages and average hours worked.

"The unemployment rate stabilised in the second half of 2009. This will prove to be a hiatus rather than a turning-point and we expect unemployment to carry on rising over the next two years, from 7.8 per cent in late 2009 to 9.2 per cent in 2011. The jobless count will peak at 2.9 million in the third quarter of 2011."

The thinktank also said it expected consumer spending to continue to be weak, falling by 0.3 per cent this year and rising by 1.0 per cent in 2011.

Nationwide though has said today consumer confidence rose moderately in the last month, while confidence in spending fell away sharply in January, declining to 96 from 108 in December. However, expectations about house prices rose slightly in January, with consumers expecting the value of their home to increase by 1.1 per cent over the next six months.

Martin Gahbauer, Nationwide's chief economist, said: "The dip in confidence last month was a timely reminder that consumers remain cautious about the speed at which the UK will recover from what has been a longer and deeper recession than many expected.

"Positive signs from the manufacturing sector and labour market may have helped boost confidence during January, but confidence is likely to remain fragile for some months to come. Heavy discounting on the high street and government driven incentives such as lower VAT, the car scrappage scheme and the stamp duty holiday combined to keep the spending index buoyant throughout much of 2009.

"The removal of these initiatives may now be causing consumers to reconsider parting with their cash at a time of year when we would normally expect to see high levels of spending confidence."

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