Recession 'hitting all parts of UK economy'
Monday, 20 Oct 2008 09:57
Recession to hit, but interest rates will fall
The economy has now fallen into recession, affecting all parts of the country, and recovery will only come in 2010.
The forecast from the Ernst & Young ITEM Club claims the UK economy has deteriorated dramatically over the last quarter and will keep contracting for the next three quarters.
In 2009 the body foretells a one per cent contraction – the first annual year of negative growth since 1992 – and it will grow by one per cent only in 2010.
Peter Spencer, chief economist to the Ernst & Young ITEM Club, said: "Gordon Brown may have won plaudits for stopping the systemic meltdown of the banking system over the last few days.
"But, we now have to face up to the reality of an economy that has been seriously weakened by recent dramatic events. The effects of the credit crisis are spreading out from the financial and housing sectors and impacting every part of our domestic economy."
The one area of optimism from the ITEM Club is the recession will be "short and shallow" and falling inflation will allow
interest rates to fall.
Mr Spencer now predicts interest rates to fall to three per cent in the coming year.
The recession will also hit consumers, with an increase in people facing debt problems expected as unemployment rises.
"Last year consumers were able to handle the income squeeze by borrowing and dipping into their savings. This year it is a very different story with credit harder to access and far more expensive," Mr Spencer said.
In the property market, the ITEM Club sees
house prices falling 14 per cent by the end of 2008 and a further ten per cent next year before stabilizing in 2010 – a higher unemployment and tight mortgage availability bite.
However, while recession is expected, Mr Spencer does not predict a depression.
"The prompt and coordinated response of Governments worldwide this week has for the moment put paid to any talk of depression, but we have to face up to the fact that in the UK and many other countries we are entering a recession," he said.
"The next 12 months will be really tough for consumers and corporates, particularly those who have never experienced one before. It’s far too early to be thinking about any recovery."