UK set for sluggish growth, NIESR warns

Economic growth will be weaker than expected this year, missing the Office for Budget Responsibility's (OBR) forecast by 0.3 percent, a respected think tank has said.

In its latest economic outlook, the National Institute of Economic and Social Research (NIESR) downgraded its forecast for growth in 2011 to 1.4 percent from 1.5 percent.

Growth will be constrained by the squeeze on household incomes from higher taxes and rising inflation, contributing to a 0.6 percent fall in consumer spending, NIESR said in its downbeat assessment.

The institute also predicted that house prices will fall by 4.5 percent this year, and will continue to decline by 1.5 percent in each of the next four years. The gloomy outlook has been compounded by weak economic growth in the first quarter of 2011 and slowing manufacturing growth.

According to NIESR, economic growth will rise up to two percent in 2012, although this is less than the 2.5 percent predicted by the OBR.

Watch Financial Director's interview with George Buckley, UK chief economist at Deutsche Bank, on the outlook for the UK economy here.