Britain's heading for recession

UK economy is expected to enter another recession in the first half of the year as households continue to limit spending and businesses are reluctant to invest in the uncertain economic conditions. 

On a positive note, according to the National Institute of Economic and Social Research the economy will grow 2.3% in 2013, providing that the eurozone crisis is resolved. The analysts also predicted that inflation would decrease significantly, with the consumer prices falling to 2.2 per cent in 2012 and 1.4 per cent in 2013. 

Unemployment, however is expected to grow to 9 per cent which may have harmful impact on the supply side of the economy in the long-term. As the UK economy currently suffers from declining demand, the government is urged to temporarily ease its deficit cuts in order to promote growth. Small investment would not harm the long-term economic goals but could contribute to the recovery. The Institute of Fiscal Studies also confirmed that the government could temporarily cut taxes, without worrying about the negative response from the Bank of England.

Despite criticism, however George Osborne announced last month that he would continue his efforts to reduce the deficit. The government is committed to meet its fiscal goals and is convinced it will in turn allow the UK economy to grow significantly this and next year. Niesr also published a report for Scotland concluding that retaining sterling would be a sensible decision as independent Scotland could be more restricted when it comes to economic policy.

Retailers suffered a significant fall in sales last month. The number of shops standing empty and scale of retail decrease since Christmas are the effects of weak demand on retail businesses. The Local Data Company  also confirmed that the number of empty shops on High Streets will grow in 2012. The reason for it is weak consumer confidence as well as growing online sales and rising unemployment. The Supergroup warned the investors that its sales in January were lower than expected, even after profitable Christmas period, when the sales grew by 5.8 per cent.

Vacancy rates are worryingly high in some parts of the UK, and to counter it the government would need to reduce business rates. The British Property Federation also recommended turning some empty shops into residential buildings.  Allowing conversion of shops into homes could be a quick and easy way of bringing the locums back into use.

It is very likely that Britain would go back into recession this year. The government therefore needs to amend its plans to reduce deficit and try to tackle the issue. In order to boost the economy and increase market confidence it could  temporarily increase public spending, invest more or encourage UK households and companies to spend.