UK output will fall by 0.5 per cent in 2012, as growth will be supressed by weak demand in the world economy and in particular the eurozone, according to a forecast from the National Institute of Economic and Social Research (Niesr).
The British research institute expects the UK economy to grow by 1.3 per cent next year and by 2.4 per cent in 2014, although there are downside risks from the euro area.
On the positive side, Niesr expects unemployment to peak at 8.6 per cent in the second quarter of 2013.
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The think tank suggests that the continued weakness of the UK economy reflects both a lack of demand and the supply-side constraint of an unreconstructed banking system and argues that the UK government should consider on-balance-sheet funding of key projects, concurrent with a comprehensive restructuring of banks and key funding markets.