UK badly placed to cope with recession
The UK is set to suffer one of the most severe recession of all the G7 countries, according to a new report.
The Organisation of Economic Co-Operation and Development (OECD) says unemployment across its 30 member countries will rise by eight million over the next two years as the most “serious” recession since the early 1980s takes hold.
But the downturn is expected to be severe in economies most vulnerable to the financial crisis or to sharp house price falls – including Hungary, Iceland, Ireland, Luxembourg, Spain, Turkey and the UK.
The OECD forecasts the British economy will shrink by 1.1% in 2009 before recovering to experience nominal growth of 0.8% the following year. In contrast, the US economy is expected to fall by 0.9% next year while the Netherlands and Germany will see their economies shrink by 0.1% and 0.8% respectively. Other countries, such as Ireland, will suffer even bigger declines than the UK, with -1.6% growth in 2009.
On average, economic activity is expected to fall by an average of 0.4% in 2009 across all OECD countries before rising to an average of 1.5% in 2010. Inflation is set to ease across the board.
Klaus Schmidt-Hebbel, chief economist at OECD, admits the projections are uncertain, with much depending on how quickly the financial crisis is overcome.
“Against the backdrop of a deep economic downturn, fiscal policy stimulus has an important role to play,” he adds.
In his pre-Budget report, delivered on 24 November, Alistair Darling said he expected the economic recovery to come at the next of 2009. But the Conservative Party says this projection is optimistic at best.
The Organisation for Economic Cooperation and Development was established in 1961 to promote policies that will improve the economic and social wellbeing of people around the world. It uses a broad range of economic information and research to help governments foster prosperity and fight poverty through economic growth and financial stability and also ensure the environmental implications of economic and social development are taken into account. It can only make recommendations and has no powers of legislation; nor can it compel members to adopt any recommendation. Based in Paris, the OECD currently has 34 members, including the UK.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).