The Item Club has downgraded it’s growth forecasts for the UK once again – from a forecast of 1.4% for 2011 (made only three months ago) down to just 0.9%, implying growth of only 0.4% in the third and fourth quarters.
It is also downgrading its 2012 forecast from a reasonable 2.2% to a more pedestrian 1.5%.
Downgrades to UK growth forecasts are sadly no longer big news, they seem to happen with alarming frequency but this one may be more significant. Crucially the Item Club uses the same economic model as the Treasury, which just happens to be the same model used by the OBR.
If the Item Club has been forced to make heavy downgrades to 2011 and 2012 growth then it seems fair to say that the OBR will have to make equally large downward revisions to its growth forecasts and the accompanying large upward revisions to borrowing in the new estimates published at the end of November.
The Item Club is now forecasting that unemployment will rise by another 200,000 over the next 18 months and calling for action from the government:
It’s worse than we thought. The bright spots in our forecast three months ago – business investment and exports – have dimmed to a flicker as uncertainty around Greece and the stability of the eurozone increases.
We think there is scope for targeted tax relief and spending measures to help put us back on track. In the meantime, businesses need to be much more aware of the economic risks and have contingency plans in place given the current volatility
In 2010 the economy grew by just 1.6% an historically weak recovery from recession. If the Item Club are correct then it will grow by 0.9% in 2011 and 1.5% in 2012. In other words the historically weak recovery is getting weaker. As NIESR keep pointing out this is the ‘weakest recovery since the end of the First World War’, weaker even than that of the 1930s.
Today is a preview of what to expect in the new forecasts that we’ll see on November the 29th. We should expect a big downgrade to 2011 and 2012 growth, a large increase in unemployment forecasts and consequently a large increase in the borrowing forecast. Even on its own terms the government’s plans aren’t working.