Cuts warning on new IoD forecast
THE UK economy will grow by 1.2% next year which could force the Chancellor to make further cuts, according to a new forecast from the Institute of Directors.
Evidence is now pointing to a “square root” shaped recovery where an increase in the pace of growth in 2010 levels off next year, the group’s analysis suggests.
The IoD today warned that if its forecasts prove correct, Chancellor George Osborne may have to raise taxes or find further cuts to meet his own budget deficit targets.
Graeme Leach, chief economist at the IoD, said: “After an extraordinary financial crisis, fiscal explosion and the introduction of unconventional monetary policy the level of economic uncertainty remains at a very high level.
“The effectiveness of traditional forecasting models – always questionable – is open to very serious doubt when they have little or no capacity to incorporate the effects of quantitative easing, and when the size and sign of fiscal multipliers is open to question in the wake of the financial crisis and exploding public debt and deficits.
“In such circumstances economic forecasting becomes what it always has been, an issue of feel and judgement.”
The IoD believes the slowing forces on the economy will not be enough to push it into a double-dip recession although it warns of a risk if confidence slides.
