Britain’s ‘weak’ economy may need tax cuts

The UK economy will grow less than previously forecast this year and the government should cut taxes to boost the recovery, the National Institute for Economic and Social Research said. Gross domestic product will rise 1.3 percent this year, compared with an April forecast of 1.4 percent, Niesr, whose clients include the UK Treasury and the Bank of England, said in a report in London Wednesday. Growth will accelerate to 2 percent in 2012. “The UK economy is weak,” Jonathan Portes, director of Niesr, said at a press conference. “The sensible thing to do now, given where we are, would be a modest loosening of fiscal policy.” The economy barely grew in the second quarter and manufacturing unexpectedly shrank in July, reports in the past week showed. Chancellor of the Exchequer George Osborne’s fiscal squeeze to reduce the record budget deficit is curbing growth, while consumers are being hit by inflation at 4.2 percent, almost twice the pace of wage growth. Niesr said that weak growth and household spending mean the government will miss its target of balancing the nation’s books in 2015-2016 by around 1 percent of gross domestic product. Still, it added that there is “time to address this.” “Further consolidation should not be introduced now,” the institute said. “In the short term, fiscal policy is too tight, and a modest loosening would improve prospects for output and employment with little or no negative effect on fiscal credibility