The Institute for Public Policy Research have claimed within their report that the UK’s recovery from recession is set to see the long-term GDP growth-rate drop to 1.7 percent over the next three years – the lowest level since the Second World War and the equivalent of £165 billion in lost output over fifteen years.
Within the report, the think-tank’s chief economist, Tony Dolphin, said: “The government's measures to tackle the deficit were predicated on the assumption that they would lead to greater confidence and certainty about the future; in fact, they have had the opposite effect.
“The government should implement temporary tax cuts and a boost to infrastructure spending not offset by cuts elsewhere. This would mean borrowing more in the short term.”
He added: “Fears that more quantitative easing would increase the risk of higher inflation in coming years are misplaced. Inflation pressures in the UK in recent years have been imported and are largely the result of high commodity prices.
“Domestic inflation pressures, for example wage growth, have been very low and this is likely to remain the case while there is a good deal of spare capacity in the economy. The time to worry about inflation is after the economy is restored to growth, not before.”
In response to the think-tank’s warning, a Treasury spokesperson, said: “Reducing the deficit is an essential element for restoring stability and strength to the UK economy.
“Tough decisions taken by the government on fiscal policy have created the space to support the economy through monetary activism such as quantitative easing. It has also established credibility that has enabled firms and households to benefit from low interest rates.”
The spokesperson added: “The government continues to look for ways to use this hard-won credibility to support the economy, as seen in the recent announcements of the Funding for Lending Scheme and using guarantees to help investment in infrastructure, as it protects the UK economy from the ongoing uncertainty and instability in the Eurozone.”
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