The National Institute of Economic and Social Research (NIESR) has warned that the climbing unemployment rate, which is predicted to hit 9% by the end of the year, will do “permanent damage” to the productive capacity of country.

Report of the leading think tank suggests that unemployment rate in the UK is expected to rise from it current 8.3% to almost 9% by the end of 2012, due to contracting economy of the country. ”The UK economy contracted in the first quarter of this year by 0.2 per cent, returning the economy to recession. Of course, revisions may change this,” the report said.

The new report from the organisation elaborates the scale of the challenges the UK economy is facing and describes the long-term harm caused by the downturn. According to the report, the “persistent weakness” in the economy after more than four years of recession is “unprecedented”. The economy is more than 4% below its pre-crisis peak and growth will be “close to zero” this year with UK unemployment reaching nearly 9%, warns the hard-hitting report.

NIESR has also increased it earlier forecast for UK inflation due to rising oil prices, however it expects inflation to fall back to below the 2% target by the end of 2012. The think tank in its report clearly mentioned that weakness in the economy is likely to persist over the next couple of quarters.

However, NIESR also expects robust growth from the start of next year and above-potential growth from 2014. NIESR predicts that the global economy will continue to be powered by China and India,and the US economy will grow by about 2% by the end of this year.

“Tensions in European financial markets have eased since February. However, fiscal austerity is depressing growth in those countries most affected by the crisis; this in turn reduces tax revenues, making the restoration of fiscal sustainability and hence market confidence even more difficult.This risks a negative feedback loop; downside risks, both economic and political, therefore remain high,” states the report of NIESR .

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