Recession in UK 'is months away'

The BCC says there is still time for the UK to avoid a recession

Recession looms in the UK in the next six to nine months as firms face "a difficult and risky climate", the British Chambers of Commerce warns. UK growth will be slightly negative or zero in the next two or three quarters, but a major recession is unlikely, the BCC says in its latest forecast.

But prospects will be worse if interest rates are not cut soon, it adds. The BCC predicts UK unemployment will rise by between 250,000 and 300,000 in the next 18 months to two years.
That could take the jobless total to more than two million for the first time since Labour came to power in 1997.

'Bigger danger'

"Over the next two or three quarters, we expect UK GDP growth to be slightly negative or zero, satisfying the conditions of technical recession," the BCC says.

"But the bigger danger of a major UK recession can and must be prevented," it adds.
"Our central scenario envisages that UK Bank Rate would be cut to 4.75% in [the fourth quarter of] 2008, followed by an additional cut to 4.5% in [the first quarter of] 2009.
"But if [the Bank of England's Monetary Policy Committee] decides not to cut rates in the next three to six months, growth prospects would be worse."
BCC director general David Frost told the BBC that the "full impact of going into a major recession as we did in the early 1990s could be avoided now".
Mr Frost said the UK needed "to get back to a a path of steady growth" as nobody wanted to experience the "major dislocation and major problems emerging from a deep recession".

Confidence falling

Whatever happens to interest rates, the BCC says, "a marked slowdown in UK activity is highly likely over the next 18 months".

This would be mainly caused by "a very sharp deceleration in consumer spending growth, in reaction to falling house prices and the acute squeeze on household disposable incomes".
At the same time, a new survey of 200 firms by Lloyds TSB bank indicates that nearly two out of three companies are more pessimistic about the state of the economy than they were three months ago.

One in five of them predicted that the level of activity in their business would decline during the next 12 months.

And the Institute of Chartered Accountants in England and Wales (ICAEW) has added to the gathering economic gloom with a survey showing another sharp fall in business confidence.
Its Business Confidence Monitor (BCM) index, covering the period from 24 April to 24 July, produced a reading of -25.7, compared with -19.7 in the previous three months.

WHAT IS A RECESSION?

There are a number of definitions of a recession.
The most commonly used one is when there are two quarters in a row of economic contraction, or negative growth.
But it is quite possible to have two quarters of negative growth and another couple of quarters of decent growth - so the economy actually grows year on year, despite going through a technical recession.