UK GDP to ‘beat pre-crash levels’ this year
The think-tank has revised its GDP growth forecast for 2014 upward to 2.9 per cent, 0.4 percentage points higher than the figure it gave three months ago.
The latest report said the improving growth outlook meant the economy would finally have fully healed from the 2008 recession later this year, having shrunk by 7.2 per cent from peak to trough.
It said: “This means that GDP will exceed its previous peak in 2008 in the next few months.”
Growth of 0.8 per cent in the first three months of the year meant the economy was 0.6 per cent smaller in March than it was at its peak in 2008, according to the Office for National Statistics.
However, NIESR said exceptionally strong growth in April alone could have been enough to push the economy beyond its pre-recession peak.
“We’re incredibly close to the pre-recession peak,” said Jack Meaning, a research fellow at NIESR who spoke to the Telegraph. “So whether we make it in the estimates or not will be a matter of 0.1 percentage points.”
Unemployment is also likely to drop to 6 per cent by 2015, the think-tank said, while inflation will stay close to the 2 per cent target.
On the basis of the government’s plans, NIESR expects a slow decline in net public sector borrowing throughout 2014, which will gather pace in subsequent years. By 2018, it predicts an absolute surplus. The net debt to GDP ratio is expected to peak in 2015-16.
But despite the improvements in GDP, NIESR said UK productivity remains low: “This matters in the short run, since without any improvement in productivity, robust economic growth will see spare capacity absorbed relatively quickly; it matters even more for the medium to long run since ultimately productivity is the main, if not the only, driver of real wages and overall prosperity.”
The UK’s trade performance also remains “disappointing”, the think-tank added.