BREAKING NEWS

UK economy to shrink in 2012 as quick austerity hurts

By REUTERS

AUGUST 3, 2012 02:17

LONDON - Britain's economy will shrink this year and any meaningful recovery will remain elusive until 2014 as the euro zone debt crisis and the government's spending cuts weigh heavily on the country's prospects, a leading think-tank said on Friday.

The National Institute for Economic and Social Research (NIESR) said the country's output could have been 239 billion pounds higher in total between 2011 and 2021, had deficit reduction been postponed by three years.

NIESR's analysis together with its forecast of a decline in gross domestic product by 0.5 percent in 2012, followed by only 1.3 percent growth in 2013, will fuel the heated political debate about the speed of Britain's fiscal consolidation.

The coalition government of Conservatives and Liberal Democrats has so far rejected calls to ease its tough plan of spending cuts and tax hikes, but the pressure is mounting after news that the country is slipping deeper into recession.

The shock drop of output by 0.7 percent in the second quarter - when one-off effects such as an extra holiday to mark Queen Elizabeth's 60 years on the throne and extremely wet weather compounded the general weakness - was the main driver behind NIESR's lower GDP forecast for 2012.

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