Rising unemployment to do ‘permanent da

Rising unemployment to do ‘permanent damage’ to economy, says think tank

Unemployment in the UK is forecast to rise by the end of year, leading to ‘permanent damage in the country’s productive capacity’, the National Institute of Economic and Social Research (NIESR) has warned.

According to research by the NIESR, the current 8.3 per cent unemployment rate – as calculated by the Office for National Statistics (ONS) – will rise to nine per cent by the end of the year and remain elevated. It said that high unemployment for an extended period of time was likely to damage the economy with large long-run economic costs.

It also predicted that growth this year would be closer to zero, rather than the Confederation of British Industry’s forecast this week of 0.6 per cent, although both forecast growth of two per cent in 2013.

The inflation forecast meanwhile, increased, as a result of a rise in oil prices, although it is still expected to fall below target by the end of the year.

While the NIESR acknowledged that future revisions may change the outlook, it said: “Small quarter movements are largely irrelevant to the broader picture of an economy that remains very weak.”

The country’s GDP remains more than four per cent lower than before the financial crisis four years ago, with GDP for March 2012 at the same level at September 2010.

“This clearly does not constitute a sustained recovery, so the question of whether or not the economy is technically in a double-dip recession is moot,” it continued.

“It remains our view that fiscal policy could be used to raise aggregate demand in the economy with little to no loss of fiscal credibility. We have never and do not now advocate scaling back the government’s medium- to longer-term policy of fiscal consolidation.”

Economists remain undecided whether the Bank of England will continue with further rounds of quantitative easing when its Monetary Policy Committee next meets to discuss it on 10 May.

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