The UK economy is likely to remain around 4 per cent below its pre-recession peak as growth slows to 0.5 percent, an economic think-tank has said.

In its latest estimates for gross domestic product (GDP) change, the National Institute for Economic and Social Research has predicted growth in output to be 0.5 percent in the three months ending in September.

The NIESR defines depression as a period where economic output is depressed below its previous peak and so while predicting the recession is over and not about to return, it is predicting economic growth to remain below its pre-recession high until 2012.

The sluggish growth at a time when the ‘economy is still below capacity’ is prompting concerns that the UK is in need of further economic stimulus with speculation the Bank of England may act before the end of 2010 to increase its asset purchasing programme.

On 7 October, the Bank left the £200billion quantitative easing programme unchanged. The policy uses central bank reserves to purchase high-quality assets in the market increasing available funds in the financial system.

In his outlook for the final quarter of 2010, chief economist at Invesco Perpetual, John Greenwood, said a process of ‘balance sheet repair and de-leveraging’ was continuing in the UK economy with this restricting lending and likely to result in ‘sub-par economic growth’.

Greenwood said quantitative easing could play a ‘supportive role by counteracting the tendency of money and credit to shrink in an environment of extended de-leveraging, prevent an unnecessarily sharp contraction of money and credit.’

The Office for National Statistics publishes its first estimate for quarterly GDP growth around three and half weeks after the end of the quarter.

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