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Economic growth set to slow: NIESR Global economic growth to slow, NIESR predicts
(about 9 hours later)
UK economic growth is set to slow down in the third quarter, the National Institute of Economic and Social Research said, lowering a previous estimate. Global economic growth will slow this year to the lowest rate since the financial crisis, according to the National Institute of Economic and Social Research (NIESR).
The think-tank said the economy would expand by 0.4% in the three months to September. The think-tank cut its 2015 forecast to 3.0% from the 3.2% it predicted in May.
That is just half the pace of NIESR's forecast of 0.8% growth it made in May. It has cut growth forecasts for the US and many emerging market economies, although its forecast for the eurozone has only been cut slightly.
Data this week showed the UK manufacturing sector grew only weakly in July. Its growth forecast for the UK economy was unchanged at 2.5%.
The pace of expansion in the construction sector also slowed. The full-year growth prediction for the UK remained unchanged despite the NIESR cutting its growth estimate for the three months to the end of September from 0.8% to 0.4%.
However, NIESR said the UK economy would expand by 2.5% this year - unchanged from its May estimate. NIESR identifies the Greek economy as a key risk to global growth. Its forecast is based on the assumption that there will be "large-scale debt relief" for Greece, which is currently far from certain.
In July the Office for Budget Responsibility (OBR) revised its prediction for GDP growth in 2015 down from 2.5% to 2.4% because of the slower than expected start to the year. It says that the latest Greek crisis has revived doubts about whether the eurozone currency union can succeed without greater integration.
The economy expanded by 0.7% in the three months to June, helped by a big rise in oil and gas production. The NIESR also says that the slowdown in China may threaten its forecast, with official figures predicting growth of 7%, while some analysis suggests growth of 3% is more likely.
'Domestic risk'
While NIESR was generally upbeat about the UK economy, it believed that weak productivity would remain a challenge.While NIESR was generally upbeat about the UK economy, it believed that weak productivity would remain a challenge.
Simon Kirby, an economist at the institute, said: "It's the major domestic risk."Simon Kirby, an economist at the institute, said: "It's the major domestic risk."
NIESR expects inflation to remain about zero until the end of the year due to low oil prices and the strong pound, but that it will return to the Bank of England's target of about 2% a year by 2017.NIESR expects inflation to remain about zero until the end of the year due to low oil prices and the strong pound, but that it will return to the Bank of England's target of about 2% a year by 2017.
Mr Kirby said the rise in the value of sterling and a fall in oil prices would be temporary.Mr Kirby said the rise in the value of sterling and a fall in oil prices would be temporary.
The think-tank expects the Bank of England to finally raise interest rates in February. The think-tank expects the Bank of England to finally raise interest rates in February next year.
Economists polled by Reuters last month mostly said the Bank would raise rates for the first time since 2007 in the first quarter of 2016. Economists polled by Reuters last month mostly expect the Bank to raise rates in the first quarter of 2016.
The Monetary Policy Committee is expected to leave rates unchanged at its August meeting this week, but is expected to show a split for the first time this year on the need to raise borrowing costs immediately. The Bank's Monetary Policy Committee (MPC) is expected to leave rates unchanged at its meeting this week.
However, there is expected to be a split among MPC policymakers for the first time this year on the need to raise borrowing costs immediately.