Recession will cause unemployment to be permanently higher, think tank says
THE FINANCIAL crisis will leave the UK with a higher rate of structural unemployment, and even when the economy recovers joblessness will remain elevated, according to a report published today by the National Institute for Economic and Social Research (NIESR).
Economic output will fall by 0.1 per cent over 2012 as a whole, before recovering strongly to grow by 2.3 per cent in 2013, the think tank believes.
However, this return to growth will not stop unemployment rising to around nine per cent, and remaining higher than in the boom years for the decade or more ahead.
NIESR expects joblessness to remain one per cent higher than before the crisis.
“Unemployment at this elevated level for such a long period is likely to do permanent damage to the supply side of the economy, with large long-run economic costs,” the report warned.
The think tank also believes consumer price inflation will fall below two per cent in the second half of this year and hit 1.4 per cent in 2013.
NIESR also cut its growth forecasts for the global economy by 0.5 percentage points to 3.5 per cent this year and four per cent in 2013.
“This assumes a delayed but ultimately successful resolution of the euro area crisis,” NIESR said. “Nevertheless, we expect a mild recession in the Euro Area as a whole, as well as in the UK.
“We forecast growth of about two per cent in the US this year, while China and India, although slowing, will continue to drive world growth.”