Recession fears grow as GDP growth drops

25-07-2008

Recession fears grow as GDP growth drops
The UK economy grew just 0.2 per cent in the second quarter of 2008, leading to greater fears of recession

Latest official estimates show weaker construction and production brought down the rate of gross domestic product (GDP) growth from 0.3 per cent in the first quarter of 2008.

The annual rate of GDP growth fell to 2.3 per cent.

Output from the construction industry fell 0.7 per cent over the last three months, compared to a rise of 0.4 per cent in the first quarter of 2008 – with large falls recorded in housing construction.

However, high levels of growth were recorded in the transport and communication sectors – up 2.2 per cent on the previous quarter.


Paul Dales, UK economist at Capital Economics, now predicts the UK is set for recession.

"The 0.2% rise in UK GDP in shows that the economy has weakened dramatically even before the full impact of the credit squeeze and housing downturn has been felt," he said.

"An outright recession is now our central scenario."

He added UK industry was already in recession.

"Looking ahead, the more up-to-date surveys suggest that in the third quarter so far, overall economic growth has ground to a complete halt," Mr Dales explained.

"What’s more, the overvalued housing market and the over-indebted household sector mean that this slowdown is not going to be brief. We expect a number of years of below trend growth, with GDP growth slowing to just 0.5% next year."

The economist also predicted an interest rate cut later in the year, but stated: "This will be too late to prevent a recession."

Meanwhile the economists at National Institute of Economic and Social Research (NIESR) predict a recession will be avoided, but growth will stall until 2010.


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