According to a tough report from the National Institute of Economics and Social Studies in the UK, the UK economy may get out of the pandemic and fall into a long-term stagnation, which will damage household income and undermine regional upgrade plans.
The think tank lowered its growth forecast for next year and predicted that rising prices could push inflation to more than 5%. Therefore, the think tank accused the government and Bank of England Poor economic management since the 2008 financial crisis.
NIESR director Jagjit Chadha said that the government has begun to rely on low interest rates to support the economy, which allows ministers to abandon their responsibility to direct investment to the most needed areas of the economy.
He said that regions outside of London are likely to miss most of the recovery, thereby widening the gap between rich and poor regions. Cuts in welfare benefits and rising inflation will also hit the disposable income of poorer households, doubling the level of poverty in the UK.
The Joseph Rowntree Foundation stated that adults with a weekly income of less than £70 or couples with two children less than £140 a week cannot afford basic living needs and are in a state of extreme poverty.
NIESR predicts that as the UK economy recovers from the Covid-19 pandemic, it is expected that the UK economy will grow by 6.9% and 4.7% in 2021 and 2022, respectively, and then sharply slow down to 1.7% in 2023 and 1.3% in 2024.
it says Bank of England Too optimistic about the economic outlook, and the probability that its inflation and growth forecasts will be realized within three years is only 30%.
It also stated that the inflation rate may reach around 5% next year, and it will stay high for longer than Threadneedle Street expected.
“We made a mistake in the economic management of the British economy,” Chadha said.
He said: “The economic growth has been disappointing over the years. This is an ongoing problem,” he blamed on the low level of public investment to improve the skill level and productivity of workers.
In a fierce attack on the government, Chadha said Brexit Make the situation worse. “Short-term supply problems will persist and may be exacerbated by Brexit. This is because our exit from the European Union has reduced the workforce, resulting in lower levels of company investment than otherwise, and resulting in a shrinking in the size of our trading sector.
“Of course, before Brexit, the squeeze on less affluent families has been more than a decade now, mainly due to the inability to solve our lack of productivity.
“Our problems are not insurmountable, but timely and continuous interventions taken by the state to support training, labor mobility, and housing construction may reduce some of the costs of adjusting the high-wage, high-skilled economy we desire,” he said. .
NIESR Deputy Director Adrian Pabst described the additional £1 billion used to increase the training budget over three years as “a drop in the ocean”.
The Bank of England kept interest rates at 0.1% last week, despite widespread speculation in financial markets that it is preparing to raise interest rates to 0.25%. Members of the Monetary Policy Committee (MPC) voted 7 to 2 in favor of maintaining interest rates at historically low levels-the level set in March 2020.
Paul Mortimer-Lee, deputy director of NIESR, said that the pressure of rising inflation next spring will become non-negligible, forcing MPC to raise interest rates to 0.5%.
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“The Bank of England (is) hoping-we think this is unreasonable-that inflation will disappear on its own soon,” he said. “It does not need to act quickly to raise interest rates, but it does need to show willingness.”
The think tank said that the shortage of important parts and commodities, especially those manufactured by emerging economies, will also hit the growth of the global economy, and its impact will exceed the current expectations of the International Monetary Fund and the OECD.
Think tanks predict that the world economic growth rate may slow to 4.3% in 2022 and 3.7% in 2023.
