National Institute of Economic and Social Research (NIESR) held the first quarter economic forecast on world and the UK economies as well as house prices in the UK and financial regulations in Europe at its regular press conference yesterday in Westminster, London.

The organisation also launched its new issue of National Institute Economic Review at the briefing that is chaired by Jonathan Portes, the director of NIESR.

Jonathan Portes,the director of NIESR,research fellows Simon Kirby and Dawn Holland,professor Ray Barrell at NIESR's first quarter press conference in Westminster,London.

The conference started with Senior Research fellow Dawn Holland’s presentation on prospects for the world economy. According to Holland the global recovery will slow and world growth will fall to 4.4% in 2011-2012 from 5.2% in 2010.High oil price accounts for ½ of the widespread slowdown. However higher oil prices will affect the US stronger than Europe due to greater oil intensity of its economy. As a result the recovery in the US will fall from 2.9% in 2010 to 2.6% in 2011 and inflation will increase from1.7% in 2010 to 3.2% in 2011 and 3.6% in 2012.

While Euro Area will be widening its north-south division due to severe consolidation in the peripheral economies like Greece, Ireland,Portugal ; Germany will be driving growth in the single currency zone with 2.6% GDP rise this year. Greece will contract by 2.5%,Ireland ‘s economy will be stagnant and Portugal’s output will fall by 1.3%-whose debt crises required emergency rescues. It is expected that Spain’s economy is in the similar danger in the line.

Japan, whose output fell even before tsunami and got worse after the disaster, experienced 4% GDP increase in 2010 that will decrease to 1.1% in 2011 and increase again to 2.7% in 2012. It is expected that the effects of the recession will be
long lasting.GDP per person in every G7 economies was still below the pre-recession level at the end of 2010.NIESR researches show that EU needs a financial reforms to prevent another banking crisis and finds the Basel III insufficient, further explained Holland.

NIESR’s research fellow Simon Kirby presented the prospects for the UK Economy that will continue to expand slowly,1.4% this year,and won’t grow faster that its trend rate of 2.1% until 2013.While GDP will be growing by 1.4% in 2011 and 2% in 2012 ,consumer price inflation will increase to 4.5% this year and fall to 1.9% in 2012.Real disposable income will fall by 1.3%.
Consumer spending will fall 0.6% this year and it will increase again by only 0.6% next year.

According to Kirby the UK’s export will grow by 6.9% this year and 4.3 % in 2012.Imports will increase by 1.4% this year and will fall by 1.1% in 2012.Real house prices will drop by 4.5% in 2011 and by 1.5” per annum in the following four years as borrowing costs rise due to tighter monetary policy.

NIESR research proves that higher loan-to-income ratios for new mortgage borrowers were the biggest reason why house prices boomed in 2000s that caused the financial crisis.

In the end of the press briefing Professor Ray Barrell explained financial regulation and its implications for the UK housing market. “Housing market plays a fundamental role in the economy and its functioning affects both consumer welfare and economic stability as the recent crisis made clear.”  said Barrell and stressed that financial reform needed after the crisis.

According to Barrell banks need to hold more capital and products need to be regulated to reduce risk of creating sub prime. Bank sizes need to be monitored and should be reduced when risks are excessive.

Barrell’s report shows that house prices will fall in real terms by 2% as interest rates increase .Banking regulation could reduce real house prices.

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