Analysis: Latest IMF reports do nothing to lift the gloom

IN MARCH, at the start of the omnishambles budget process, the Office of Budget Responsibility predicted that UK GDP would grow by 0.8 per cent in 2012 and by 2 per cent in 2013. There has been a significant downturn in sentiment since then, partly precipitated by the euro crisis, but also by the poor domestic performance of the economy.

Last week, accountancy firm PwC forecast that growth would be zero in 2012 and rise to 1.7 per cent in 2013. Its pessimism was reinforced yesterday when the IMF published its latest forecast for the UK economy. It expects that UK growth in 2012 will be a meagre 0.2 per cent, rising to a mediocre 1.4 per cent in 2013.

Even though these forecasts for 2012 are weak, I argued in these columns last week that there would have to be positive growth in the second half of the year to offset the decline in output that has occurred in the first half of 2012. Unless there is some expansion in the last six months, the outcome for the year as a whole could be negative, deepening the second recession that the UK has experienced in four years.

The UK authorities are clearly aware of the weakening economic prospects. Last Friday, the Bank of England said it would make a further £80 billion available to help banks sustain lending to households and businesses. Perhaps this is a response to Vince Cable’s complaints that the banking system is dysfunctional.

The Bank has argued that previous rounds of quantitative easing (QE) have increased the flow of funds to business. Trying to establish what would have happened had QE not been in place is one of those dark arts practised by economists with varying degrees of credibility.

• David Bell is professor or economics at Stirling University.