Recession Looms Says Economist
With Britain’s GDP growth now at zero, Capital Economics is forecasting a recession this year and next. The Treasury takes a more optimistic viewpoint. Inflation is set to come down in 2009.
As the latest official figures from the Office of National Statistics show that GDP growth sank to zero between April and June, it certainly looks as though Britain is on the verge of recession. A recession is defined as two periods (quarters) of negative growth, so the last quarter doesn’t quite count, however the writing on the wall could hardly be clearer.
Top economic consultancy Capital Economics (CE) is now forecasting that the GDP in 2009 will fall for the first time since the early 1990s.
A recession will undoubtedly bring a number of redundancies and business closures, bringing more difficulties for many families already feeling the pinch. CE says the recession will come from the fact that the banks are not lending, or at least cutting lending, to companies as well as individuals.
The silver lining to the cloud is that CE is predicting that inflation will come down again in 2009, and that will allow the Bank of England base rate to be cut. CE believes they will come down to 3.5% from their current level of 5%. That would mean six cuts at a quarter percent each.
The Government has come under criticism for not spending its way out of the problems. According to entrepreneur Peter Hargreaves of investment firm Hargreaves Lansdown, the Government has no money to spend because it has been borrowing for so long, and the banks have no money because of the errors they made leading to the credit crunch.
Shadow Chancellor George Osborne eagerly agreed with CE’s forecasts, saying it was proof of Labour’s economic incompetence, and that ‘the Brown bubble had burst’.
The Treasury is taking a more optimistic viewpoint. It says that GDP growth will be between 2.25% and 2.75% in 2009. It also said that other European economies were suffering more than Britain’s. The Government’s priority, it said, was to guide Britain through challenging times, and support those hit hardest by what it said were ’global factors’.
