Britain faces a "bleak" start to 2012 but any potential slowdown could be dampened by a fall in inflation, which would boost consumer spending power, the Institute for Public Policy Research (IPPR) said.
"As we enter 2012, it seems the word that best describes the outlook for the UK economy is 'bleak'," the think-tank's chief economist Tony Dolphin said.
"The eurozone crisis is unresolved and country after country is being forced to adopt extreme austerity measures that will result in large falls in output.
"As a result, the whole eurozone economy is believed to be back in a mild recession."
After coming to power in May 2010, Britain's coalition government announced cuts worth £81 billion ($131 billion, 92 billion euros) over five years in order to slash a record public deficit it blames on the previous Labour government.
If the general mood of austerity deepened, it could affect the confidence to "such an extent that the economy drifts into recession," cautioned Dolphin.
The economist argued the only way to drag the country out of a double-dip recession would be to loosen public purse strings in order to boost demand.
Finance Minister George Osborne has consistently ruled out this policy change, citing Britain's low borrowing costs as vindication of his plan.
"With no prospect of tax cuts or lower interest rates, it is not clear what in the short-term the catalyst for more spending by the private sector will be," Dolphin said.
"In the short-term, economic policy has become a matter of hoping that something turns up -- and that is why, for the UK economy, 2012 is unlikely to be a happy New Year," he added.
Share
