Economists warn slow recovery will lead to unemployment rise

Tim Wallace
Follow Tim
GROWTH should return to the economy over the next six months, according to forecasts out today from the Ernst and Young Item Club, but the pace will be so slow that unemployment will get worse before it gets better.

The squeeze on household incomes should slow as consumer price inflation falls to 1.7 per cent by the end of the year, allowing the economy to expand through the rest of the year, the group forecast.

That will leave GDP unchanged for 2012 as a whole, with growth of 1.6 per cent in 2013 and 2.6 per cent in both 2014 and 2015.

But poor growth in the year so far means government spending is soaring while revenues are disappointingly slow, the economists warned.

“Central government spending was 7.9 per cent higher than a year earlier in May, the strongest growth in eighteen months,” said the report.

“Revenue growth has weakened significantly in recent months and in May central government receipts were up just 1.6 per cent on a year earlier, well short of the OBR full year forecast of four per cent.”

And despite the projected growth for the rest of 2012, the forecast still sees unemployment rising in the coming months, from 8.2 per cent in the three months to April to 8.6 per cent by the end of the year and peaking at 8.7 per cent in early 2013.