UK back in recession, says think tank

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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.

Double-dip recession

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


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