The National Institute of Economic and Social (NIESR) said in a report on Friday the British economy has entered a mild recession and will contract 0.1% in 2012 as the escalating European debt crisis will continue to weigh on exports and confidence. NIESR expects 0.2% and 0.1% contractions in the first and second quarters of 2012; thereafter, the economy will start to recover till recording 2.3% expansion in 2013.

Unemployment will climb to 9.1% this year, where the aforesaid recovery in 2013 may not be able to push the rate down, according to NIESR forecasts.

The institute warned that the government must launch measures to boost near-term spending, especially on infrastructure projects, to create new job opportunities without affecting its creditability.

NIESR said the credible commitment to a sustainable fiscal policy over the longer term provides the government with the flexibility to provide a clearly defined and temporary boost to near-term demand.

Regarding inflation, the rate is expected to decelerate below the bank's 2% target in 2012 while remaining at these low levels through 2013 and 2014.