Academic journal article National Institute Economic Review

The UK Economy. (at a Glance)

Academic journal article National Institute Economic Review

The UK Economy. (at a Glance)

Article excerpt

* After negligible growth in the past six months, the economy will pick up sharply in the second quarter and expand by 0.8 per cent.

* Even though recovery is now starting, GDP will grow by only 1.8 per cent in 2002, below the 2-2.5 per cent range forecast in the Budget; in 2003, the economy will grow by 2.9 per cent.

* The Budget has weakened the public finances and is over-optimistic about the amount of tax revenues that future growth will generate.

* Tax increases worth I-1.5 per cent of GDP will eventually be needed to restore stability to the public finances.

* On average inflation is expected to remain below target until the end of next year.

The economy is at a turning point. GDP stagnated in the final quarter of 2001, the first halt to quarterly growth since Spring 1992, and is estimated to have grown only slowly in the first three months of 2002. But output should now expand quite sharply in the second quarter as the company sector ceases to act as a drag on the economy.

Despite more favourable global conditions, growth in 2002 will still be a relatively modest 1.8 per cent. One major reason is that net exports will continue to act as a contractionary influence. After reducing GDP growth by 0.8 per cent in 2001, net trade will subtract 1.5 per cent from growth this year. As in 2001, the main bulwarks of the economy will be strong spending by consumers and the government. …

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