UK still sailing close to a recession

10 September 2008

The UK’s economy has drifted into negative territory heightening fears that a recession will hit before the end of the year.

The National Institute of Economic and Social Research (NIESR) claims the economy fell by 0.2% in the three months to August, after a fall of 0.1% in the three months to July. The group is predicting a further fall for September, although this is not expected to be any worse than that of August.

“This is the first fall of output shown by our monthly growth figures since the series started in April 1996,” NIESR said in a statement.

Concerns are mounting that the UK is about to fall into recession, defined as two successive quarters of negative growth, after the official GDP figures from the Office for National Statistics (ONS) showed economic growth ground to a halt in the second quarter.

Most analysts believe that official third and fourth quarter data will show falling economic growth. This would put the UK in the grips of a recession by the end of the year – conditions not seen since 1991.

Howard Archer, chief UK and European economist at Global Insight, believes the economy is in for a tough time over the next nine months.

“We are expecting the economy to contract in the third and fourth quarters of this year and the first quarter of 2009, before starting to bounce back to modest growth in the second half of next year,” he says.

However, Archer adds: “The Monetary Policy Committee may indeed choose to wait until January before cutting interest rates because the prospect of inflation above 5% is very real. We see steady interest rate cuts to a low of 3.5% next year.”

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