By Martin Kelly
Chancellor George Osborne is being urged to invest in infrastructure after the Bank of England slashed its growth forecasts for 2012 from 0.8 per cent to zero.
The downgrade follows worse than expected figures for the last three quarters showing the UK in the worse double dip recession for fifty years.
The quarterly inflation report indicated no growth for 2012 compared with 2% predicted a year ago, and 0.8% predicted earlier in the year.
The bigger than expected contraction in the economy this year was attributed to falls in construction output, prompting the SNP to renew its calls for capital investment in ‘shovel-ready’ infrastructure projects to stimulate growth.
Former CBI director-general Sir Richard Lambert has also called for the Chancellor George Osborne to invest in the construction industry with a ‘bold scheme’ on housing.
Speaking on Radio 4 on Wednesday, Sir Richard said: “The IMF last month said if growth doesn’t start to pick up soon there’s a case for the Chancellor changing tack – I think that’s going to be the question for this autumn…
“One thing is getting some jobs in the economy and the obvious way to do that is through the construction sector and the obvious need there is in housing. So I think he should be thinking about some bold scheme on housing.”
SNP Treasury spokesperson Stewart Hosie MP said:
“These downgraded forecasts for an already downtrodden economy show the need for capital investment is now more urgent than ever.
“With the recession worse than expected and no growth predicted this year, how much longer do we have to wait for the UK Government to end its failed austerity agenda and invest for jobs and growth?”
Monetary Policy Committee member Spencer Dale said the Olympics should have a small positive contribution to the economy in the third quarter between July and September. However Mr Hosie insisted the Olympics should not be used as a distraction. The SNP MP also criticised the UK coalition’s recent in-fighting over House of Lords reform and urged them to put all their efforts into the bigger economic picture.
He added: “While the Olympics offers many people welcome relief from the economic woes, one person who should not be distracted from his job is the Chancellor. He should be working tooth and nail to get the economy moving – that means positive action to boost jobs and build infrastructure for the future, instead of choking back growth with relentless cuts.
“The Scottish Government is using all the powers at its disposal to boost growth, and has brought forward a £105 million economic stimulus package to maximise opportunities to create jobs. But calls for the UK Government to bring forward capital investment for ‘shovel ready projects’ have so far fallen on deaf ears.
“The UK Government must U-turn on their disastrous economic programme and invest now to get the economy moving again.”
Labour’s shadow chief secretary to the Treasury, Rachel Reeve said: “With growth forecasts slashed yet again, not just this year but in future years too, it is clear that we cannot go on with the same failing plan from this Government. The Chancellor’s policies aren’t only causing short-term pain, but long-term damage to our economy too.
With UK GDP forecasts making for gloomy reading, many analysts now believe that interest rates are unlikely to rise for almost three years.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “We certainly would not rule out a future trimming of interest rates from 0.5% to 0.25%, but we believe it is more likely that they will stay at 0.5% through until at least late-2014.”
The Bank of England also lowered its forecast for 2013 to around 1.9% from just over 2% in its May estimate, while 2% growth is predicted for 2014.