Risk of "full-blown" UK recession is real, says Deloitte

28-01-2008

Risk of
The UK economy is entering its weakest period of growth in 15 years, an economist has warned.

Roger Bootle, economic advisor for the Deloitte Economic Review, added there is a risk the economy would slip into a "full-blown recession" and called it a period of "fundamental adjustment".

The announcement confirms fears of a slowdown in the UK stemming primarily from a weak housing market, which Mr Bootle said was "at the heart of the downturn."

"The global financial crisis and associated credit crunch have brought an end to the period of easy credit that in recent years has been the bedrock of the rapid rises in house prices," Mr Bootle said.

"Without this support, house prices may fall sharply, perhaps by around five per cent this year and by something like eight per cent in 2009."

He also warned that the slowdown will likely have an impact on employment, resulting in slower growth and leading to "sluggish" overall income growth.

Both factors would further undermine the already weak housing market, he said in the report.

Additionally, Mr Bootle said the world economy would not be there to "soften" the landing because of the slowing US economy.

"We think that US economic growth will slow to zero in the first half of this year, with a good chance of an outright recession," he said and added that Deloitte expected the US to grow by just 1.3 per cent in 2007.

Down from 3.2 per cent last year, GDP growth in the UK was expected to slow to around two per cent for this year and even lower in 2009, the statement said.

With housing and stock markets in a panic, the forecast does little to ease recession worries and paints a grim picture for the world economy.

Mr Bootle said that the "period of re-adjustment" would last longer than a year, but would pave the way for renewed and better-balanced growth.

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