UK stagflation to return after five years of 'lost growth'
The Bank of England
Gross domestic output will not return to 2019 levels until the second half of next year, forecasts from the National Institute of Economic and Social Research found.
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The think tank's outlook for inflation is slightly higher than the Bank of England, expecting it to reach 5.2% by the end of this year, compared to the central bank's prediction of 4.9%.
The BoE then expects inflation to return to its 2% target by Q2 2025, while Niesr predicted inflation will average 2.3% across the year, and will not return to the target until after 2027.
Jagjit Chadha, director of the think tank, said poor economic performance had led to the «re-emergence of the British disease» — a reference to stagflation.
«Growth is not going to go materially beyond its pre-Covid peak over the forecast horizon,» he added.
«The triple supply shocks of Brexit, Covid and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy,» said Stephen Millard, NIESR's deputy director for macroeconomic modelling and forecasting.
This «stuttering growth» will also be made worse by the large budget deficit the government is currently running, leaving it unable to offer tax cuts to spur growth, argued Chadha.
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«Even at full employment, we're regularly running a fiscal deficit, which implies to us that we have a structural fiscal deficit,» he said.
«As the fiscal position is constrained, because the financial markets don't want to absorb more debt relative to our lower level of income, the room for manoeuvre will be limited.»
Low income households
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