Think-tank cuts its growth forecast again

A LEADING think-tank has urged the Chancellor to revise his deficit-busting measures after making another cut to its forecast for UK growth.

The National Institute of Economic and Social Research (NIESR) expects GDP to rise by 1.3 per cent in 2011, its second downward revision this year as consumer spending falls by more than previously thought.

In its last forecast in May it predicted growth of 1.4 per cent but it said today that weaker spending would "hinder any meaningful recovery" this year.

NIESR repeated its call for "a modest loosening in fiscal policy" to improve prospects for output and employment.

Shadow chancellor Ed Balls has criticised the government for cutting too far and too fast and has called for VAT to be reduced back to 17.5 per cent.

NIESR believes Chancellor George Osborne is set to miss his target of eliminating the budget deficit by 2015-16 as tax revenues are hit by the weaker spending and growth.

But it said he could loosen policy in the near-term to stimulate growth without losing credibility and would still have time to narrow the gap closer to the deadline.

The think-tank forecast that global growth will decelerate to 4.5 per cent in 2011 from 5 per cent the previous year following the tsunami in Japan and a slowdown in the United States.

It warned that the eurozone debt crisis could depress an already weak period of growth for the UK, making policy change more urgently needed.