Coalition cuts too deep, says NIESR

The coalition government should ease off its deficit-cutting agenda to improve the outlook for economic growth and employment in Britain, the National Institute of Economic and Social Research (NIESR) has said.

The NIESR says that Britain’s public finances will not improve as quickly as the Office for Budget Responsibility, a body set up by the coalition government to supervise its deficit-cutting plans, expects, due to weak growth and consumer spending.

“The Chancellor has time to address this and further consolidation should not be introduced now,” the NIESR says.

“Indeed, it remains our view that in the short term fiscal policy is too tight, and a modest loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility.”

The NIESR predicts that the economy will grow by 1.3% this year and by 2% in 2012, consumer price inflation will fall back from 4.2% this year to 1.9% in 2012, household finances will remain vulnerable to a modest interest rate rise, unemployment will rise from 7.9% in 2011 to 8.3% in 2012.

The NIESR growth forecasts are similar to those of the employers’ organisation, the CBI, which earlier this week lowered its forecast for economic growth in the current year, but left its prediction for a sharp rebound in 2012 unchanged. The employers' organisation now sees the economy growing by 1.3% this year, down from its previous estimate of 1.7%. It keeps its estimate for growth of 2.2% in 2012 unchanged.