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Forecast Undermines UK Deficit Target

Service : Economy
TEHRAN, May 5 (ICANA) – Britain's National Institute for Economic and Social Research says the country's economic growth has “deteriorated markedly” since the autumn hampering the government's deficit reduction plans.
Thursday, May 05, 2011 10:59:43 PM
Forecast Undermines UK Deficit Target

The NIESR said British consumers are facing the second consecutive year of shrinking real personal disposable incomes which has not been recorded since 1972.

"Real personal disposable incomes are expected to decline sharply, by 1.3% this year, in part due to the impact of tax increases that have come into effect in the first half of this year," the think tank said.

According to the NIESR, the squeeze on consumer's spending power following a 0.8 percent drop in 2010 will hit the economy, which will not be able to reach its 2008 peak until 2013 while the economic output will also be capped at just 1.4 percent for 2011.

The NIESR said the weak recovery will lead to lower tax revenues in turn further hampering growth.

That means the government will be able to reduce the net public sector borrowing to 3.6 percent of the GDP rather than a target 1.5 percent at the end of the current parliament in 2015-16 even if it sticks to its sweeping spending cuts plans.

The NIESR's quarterly report raised angry reactions from the Labour who said the government has trapped itself in a “vicious circle” by its austerity measures.

"NIESR is right to warn, as Labour has, that slower growth will mean lower tax revenues and so make it harder to get the deficit down,” said Angela Eagle, Labour's shadow chief secretary to the Treasury.

"Cutting too deep and too fast, as this government is doing, is a vicious circle. [Chancellor] George Osborne is already expected to borrow £46 billion more than he was planning a few months ago because of the slower growth, higher unemployment and higher inflation his policies have delivered," she added.

The Treasury insisted that the 1.4 percent growth forecast for 2011 is too gloomy as forecasts by the Office for Budget Responsibility and independent average for 2011 point at a national output growth of 1.7 percent this year.

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