The National Institute for Economic and Social Research (NIESR) is now forecasting 1.1% growth in 2013, down from 1.3%, due to a weaker global outlook. 

NIESR has forecast GDP will dip by 0.1% for 2012 as a whole, up from its August forecast of a 0.5% contraction, after surprisingly strong expansion in the third quarter.

It also found the UK’s labour market has remained remarkably resilient compared both to previous recessions and to other countries such as US.

“Risks to the UK economy are dominated by the external environment. Despite the uncertainty about the US ‘fiscal cliff’ and the degree to which emerging markets are slowing, from the UK perspective developments in the euro area are most important,” the report said.

NIESR said fiscal consolidation in Europe has impacted negatively on growth, which in turn made it much more difficult to reduce deficits.

“We now expect that the cyclically adjusted current budget will be approximately balanced in 2016-2017, and in surplus the year after, which will be the new target year post-Autumn Statement.

“However, public sector net debt as a proportion of GDP will not fall until 2017-2018,” the report found.

“Only in 2015 do we expect economic growth to rise above the UK’s potential rate of 2% per annum.”

Elsewhere in the world the think-tank said world growth is expected to remain below trend at 3.1% in 2012 and 3.4% in 2013.

The euro area is forecast to contract by 0.5% this year and grow only marginally next year with unemployment reaching ‘depression-era’ rates in some periphery economies.

The US is likely to grow by 2% in each year.

Growth in emerging markets, Brazil, Russia, India and China will be below long-term potential next year, NIESR added.