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Friday, 26 October, 2001, 09:59 GMT 10:59 UK
UK 'will avoid recession'
welder
UK manufacturing is already in recession
Chancellor Gordon Brown has achieved his aim of abolishing 'boom and bust', according to a leading economic think tank.


Unless the economic situation worsens further, there is no need for Bank of England to make further cuts in interest rates

NIESR quarterly report

The UK is likely to boast the fastest growing economy in the G7 group of industrialised nations next year, says a report by the National Institute of Economic and Social Research (NIESR).

This flies in the face of recent predictions by the Confederation of British Industry (CBI), which is calling for a further cut in interest rates to stimulate growth.

The Governor of the Bank of England, Sir Edward George, has also said it is "too early" to rule out a UK recession.

Interest rates

However, the NIESR predicts that the UK economy will grow by a healthy 2.3% this year and 2.1% next year.

While inflation will be a little below the Bank of England's target of 2.5% in the fourth quarter of 2001, falling to 1.8% by the end of 2002.

"Unless the economic situation worsens further, there is no need for Bank of England to make further cuts in interest rates," the NIESR's quarterly report said.

Official figures

The picture seemed to be confirmed by official figures released on Friday, which showed surprisingly strong economic growth in the three months to the end of September.

Gross Domestic Product (GDP) grew 0.6%, giving an annual growth rate of 2.2%, according to the Office for National Statistics.

Growth is being driven by the service sector, with manufacturing continuing to struggle, according to the ONS survey.

Public spending

The NIESR puts its optimistic outlook down to last year's "fortuitous" increase in public spending which, it said, would "insulate" the UK against recession.

The Bank of England has cut interest rates six times this year in an effort to stave off recession, reducing borrowing costs to their lowest since the early 1960s.

The CBI recently called for a further half point cut to help Britain's hard-pressed manufacturers.

'Little chance of recession'

But Nigel Pain, senior research fellow with NIESR, told BBC Breakfast, that there was no need for any further cuts.


There are parts of the economy that are in recession, particularly the manufacturing sector

Nigel Pain, senior research fellow, NIESR
"We have growth of about 2% in the economy as a whole next year, a little bit below trend, but a long way from actual declines in output, which would signal a full-blown recession," he said.

This meant that the risk of a UK recession was almost non-existent at the moment, although much would depend upon the world economy.

"We do think the American economy is in recession, if that deepens or if world stock markets fall further we will see lower growth than we are forecasting," Mr Pain added.

Manufacturing

"There are parts of the economy that are in recession, particularly the manufacturing sector.

"But there are many other parts of the economy, particularly in many service sectors, where output growth is quite strong.

"We think output probably grew about 0.5% in the third quarter and will grow by about a similar rate in the fourth quarter."

There was also a risk that the country could "talk itself into recession".

"A lot depends on confidence and how confident businesses and consumers are.

"If there was a big downturn in confidence then that would hit expenditure.

But we are not expecting to see that at the moment," Mr Pain said.

See also:

25 Oct 01 | Business
Mortgage lending hints at slowdown
24 Oct 01 | Business
Foreign investors shun Britain
22 Oct 01 | Business
UK economy outshines its peers
11 Oct 01 | Business
'Worse to come' for UK economy
05 Oct 01 | Business
UK has 'three-speed' economy
24 Sep 01 | Business
Why consumer confidence matters
24 Sep 01 | Sci/Tech
UK research 'falling behind'
24 Sep 01 | Business
UK growth 'to fall sharply'
23 Sep 01 | Business
'Too soon' to rule out UK recession
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