UK back in recession, says think tank
The UK is probably already in a new recession, according to new estimates from highly-regarded economic forecaster the Ernst & Young ITEM Club.
As troubles in the eurozone are holding back Britain's recovery, ITEM Club believes GDP shrunk in the final quarter of last year, and will fall again this quarter. This would constitute a recession.
Even if the eurozone troubles were resolved this year, ITEM believes the UK economy would only grow by 0.2%, and not return to "normal" growth levels until 2014.
"Consumption was very badly hit by rising inflation last year, business spending has been paralysed, and of course recruitment has also gone on hold as a result of the euro crisis. And unfortunately, turning to exports, Europe takes the lion's share of our exports," Peter Spencer, chief economic adviser to the ITEM Club, told the BBC.
Spencer, however, did not expect to see a repeat of the severe plunge seen in 2009, as this will not be a "serious" double-dip recession. The strong balance sheets of UK companies will be helpful in the event of a new downturn, as most have built up their cash reserves following the events of recent years.
The ITEM Club expected inflation to fall back below 2% this year, however unemployment remained a key concern. ITEM believed the numbers will rise by 300,000 to almost three million jobseekers this year. The Chartered Institute of Personnel and Development said unemployment would stay above 2.5 million until at least 2016, peaking at 2.9 million next year.
The gloomy forecast of the ITEM Club was echoed by the Centre for Economics and Business Research, which believes the UK economy will shrink by 0.4% this year. New growth figures from the Office for National Statistics will be published next week.
This article was written for our sister website, Interactive Investor
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).
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).