British Economy Faces Deeper Recession in 2012

Tighter spending policy and the deteriorating economic states of its immediate neighbours may push the British economy into a new round of recession, according to the latest report released by the Institute for Public Policy Research (IPPR).

Many of the eurozone economies are already battling a mild form of recession, according to IPPR chief economist Tony Dolphin, just three years after the last financial crunch hit in 2008.

"As we enter 2012, it seems the word that best describes the outlook for the UK economy is bleak," 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," Dolphin said.

Such measures, he stressed, hurt consumers' resolve to hit the stores and do some spending that would greatly fuel the region's economies, including that of Britain's.

The only consolation seen by economists are lower borrowing costs and improving inflation levels, which together could spur more confidence among British consumers, the report said.

Dolphin warned, however, that David Cameron's government may overshoot its goals in implementing the austerity policies it rolled out last year "to such an extent that the economy drifts into recession".

The Coalition government spending cuts aim to save more than $126 billion over the next five years.

While aiming to achieve balance on its budget, the IPPR said that Britain would do well in rationalising its spending programmes, allocating more cash on priority programmes that should encourage more demand and possibly avert another recession.

"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," the IPPR economist said.