Be prepared for ‘groundhog year’, UK told: Warning of continued poor growth and crisis abroad

A LEADING think-tank has warned that, economically, 2013 could turn out to be a “groundhog year”, with a repeat of sluggish growth at home and the crisis in Europe seen in 2012.

In a highly critical report, the Institute for Public Policy Research (IPPR) said that consumer and business spirits have been so thoroughly dampened by talk of years of austerity ahead that the economy may fail to grow again over the coming year.

The UK government “still does not have a path back to growth” and appears to be pinning its hopes on “something just turning up”, said IPPR chief economist, Tony Dolphin, in a gloomy New Year message.

The Office for Budget Responsibility’s forecast of 1.2 per cent GDP growth in 2013 and 2 per cent in 2014 appear to depend on a “very unlikely” readiness of hard-pressed households to drop the habits of the past four years and take on extra debt in order to consume more, he said.

The IPPR is calling on the government to boost demand in the economy, pump more investment into infrastructure projects, establish a British Investment Bank and guarantee a minimum wage job in charity or local government for anyone unemployed for over a year.

Mr Dolphin said: “Policy-makers appear to have little idea how to boost growth in the economy and are left hoping that the news will get better. The risk is that 2013 could be groundhog year for the UK economy. The latest forecasts suggest growth in 2013 will be weak, but better than in 2012, and that unemployment will rise. The risk is that they are too optimistic about growth, but that – unlike in 2012 – they are right about unemployment.”

He added: “How this plays out politically will depend to some extent on what happens to unemployment. In 2012, the double-dip recession did less damage to the credibility of government economic policy than it might have done because employment increased and unemployment fell by more than expected. Few economists expect the government’s luck in this regard to hold.

“The best way to describe the outlook for the UK economy is ‘uncertain’. Unfortunately, uncertainty is not just a useful description; it is a key determinant of the outlook. The risk in 2013 is that all the talk of years of austerity at home and continuing crisis in Europe creates a huge amount of uncertainty, which will dampen animal spirits to such an extent that the economy fails to grow again.”

The criticism came as Labour raised concerns over the coalition tearing up the 2010 Fiscal Responsibility Act to help halve the deficit. Labour’s shadow chief Treasury secretary Rachel Reeves said: “David Cameron and George Osborne tore up Labour’s plan to halve the deficit over four years and gambled that deeper and faster tax rises and spending cuts would secure the recovery and get the deficit down. But this has totally backfired as, by choking off the recovery and pushing up long term unemployment, they are now set to borrow £212 billion more than planned to pay for the costs of economic failure.”

The SNP said the IPPR report underlined Scotland’s need to run its own economy. SNP Westminster leader Angus Robertson said: “A No vote means economic stagnation within the UK, continued austerity, and the dismantling of the welfare state.”