Economy set to escape recession

09-07-2008

Economy set to escape recession
Economic growth will fall to levels last seen in 1992, not we should avoid a recession.

The Centre for Economics and Business Research (CEBR) predicts two years of stodgy growth for the economy – but a recession will be avoided.

The body predicts the GDP growth will hit 1.7 per cent in 2008, down from 3.0 per cent growth in 2007, and slow to 1.3 per cent in 2009 – the worst since 1992.

Mark Pragnell, CEBR managing director, said: "Our latest forecasts for the United Kingdom economy suggest that we are set for at least two years of slow growth — as the credit crunch compounded by global inflationary pressures squeezes household budgets, corporate profits and government finances, and leads to a period of sclerotic monetary policy.

"But the economy should avoid recession."

He added: "After 11 years of New Labour, the United Kingdom economy is set for two years of hard labour."

CEBR also predicts interest rates – set to be announced tomorrow by the Bank of England – will stay at the current level of five per cent for at least six months and inflation continues to rage.

Mr Pragnell added: "Moving into 2009, the global slowdown will begin to bite; Chinese growth should slip from around eleven per cent annually now to 7.5 per cent next year and the United States will only just avoid recession — taking the heat out of over inflated commodity prices.

"So, we expect inflationary pressures in the United Kingdom to ease markedly next year — curing the current monetary policy sclerosis by providing room for the Bank of England to enact a cautious series of interest rate cuts in an attempt to revive the ailing economy. We expect base rates to fall to four per cent by autumn 2009."

The forecast, however, does recognise the risk posed by oil prices and high wage deals.

"If oil prices continue to rise into next year and further inflation-busting pay deals are won by an increasingly militant workforce, there will be no chance for the Bank of England to provide emergency treatment in the form of rate cuts next year," Mr Pragnell stated.

"Without looser monetary policy in 2009, we run the risk of the slowdown becoming entrenched and a stagflation recession becoming a real possibility."

Earlier in the week, the National Institute of Economic and Social Research (Niesr) forecast economic growth in June to be 0.2 per cent, almost the same as the growth in May.

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