UK economy will remain sluggish

GDP growth in the UK will be just 1.2 per cent in 2011, according to the Institute of Directors’ latest economic outlook. This is unchanged from the institute’s previous quarterly forecast in November 2010.

In its latest UK economic outlook published today, the Institute of Directors forecasts UK GDP growth will be just 1.2 per cent in 2011.

The IoD lists five economic influences that combined will weaken GDP growth prospects. These factors are falling household real income, a flat savings ratio, upward interest rate expectations, the fiscal squeeze and anaemic broad money supply growth.

A spokesman for the IoD, said: “In 2011-12 we think there is more of a risk to the economy from a mistake in monetary than fiscal policy. Raising interest rates when the money supply is so weak could undermine recovery and risks a double-dip.

“The spending squeeze should proceed as planned and the MPC should avoid raising interest rates. In fact, broad money supply statistics suggest there is a case for an extension in quantitative easing if anaemic monetary growth continues.”

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