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The Progressive Policy Think Tank

GDP fall much bigger than expected

Government must act to get the economy growing again.

The Office for National Statistics has confirmed that the UK economy remained in recession during the second quarter of 2012. Real GDP fell by a much bigger than expected 0.7 per cent and it has now fallen for three consecutive quarters and in five of the last seven quarters. Output is 4.5 per cent lower than at its peak at the beginning of 2008.

Tony Dolphin, IPPR Chief Economist, said:

"The UK economy remains mired in recession. There is now little chance of the OBR's forecast of 0.8 per cent growth in 2012 being achieved and even the IMF's forecast for growth of 0.2 per cent, made only last week, is now under threat.

"Before the financial crisis, the economy was expected to grow, on average, at an annual rate of 2 1/4 to 2 1/2 per cent. So, output in 2012 will be almost 15 per cent lower than might reasonably have been expected before the financial crisis.

"The Chancellor should take immediate steps to implement a combination of Keynesian and supply-side policies to get the economy growing again in the next few years and to ensure growth is sustained well into the medium-term. These should include temporary tax cuts and a boost to infrastructure spending not offset by cuts elsewhere. This would mean borrowing more in the short-term.

"The IMF has given the thumbs up to this approach, saying 'The UK has the fiscal space to make such adjustments'.

"In the light of the deteriorating situation in the euro zone, the Chancellor should also publish details of the Government's contingency plans for a serious worsening of the euro zone crisis. Assuming these plans are credible, this would reduce some of the uncertainty that is holding back business investment and recruitment and be a cost-free way of potentially boosting the economy."

Notes to Editors

IPPR's recently published a report - A path back to growth - arguing that more effort is required to boost demand in the short-term and to ensure that the economy's growth potential is supported in the medium-term. It says that a path back to growth will require a change in fiscal policy, but on its own this will not be sufficient. This report is available at:

In the report, IPPR also argues for reforms to address long-standing weaknesses in the UK economy: underinvestment, vulnerability to external shocks, a poor export performance and persistent inequalities. The report argues that the path back to growth should also be a path to a different kind of British capitalism.

IPPR's new report recommends a roadmap for growth with six elements:

  1. An increase in the scale of quantitative easing
  2. Fiscal measures to boost growth in the short-term combined with a reaffirmation of the plan to eliminate the deficit in the medium-term
  3. Additional infrastructure spending
  4. Measures to make household debt restructuring easier
  5. Measures to keep the long-term unemployed in touch with the labour market
  6. An active industrial policy

The report says Government ministers have called the business environment favourable and accused companies of whingeing about government policy when they should be investing their cash piles but, from a business perspective, the outlook is decidedly uncertain and this is a major deterrent to making long-term plans and spending money. The report argues that policy needs to be oriented towards reducing uncertainty.


Richard Darlington, 07525 481 602,