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Think tank suggest UK already in recession

Economic forecaster ITEM Club has suggested the UK may have already slipped back into recession.

The Ernst and Young sponsored think tank said figures for the first quarter of this year could show a shrinking GDP.

Political uncertainty in the Eurozone has paralysed the UK recovery, suggests the report, which forecasts a GDP growth of 0.2% this year.

Professor Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club explains: “Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement.

“But it’s not going to be a repeat of 2009; we are not going to see a serious double dip.

“This time around, UK PLCs have strong balance sheets and have built up large cash stockpiles, which will provide a useful insurance policy if the situation deteriorates further. Business spending has already been cut back heavily.

“However, with business confidence faltering, investment and recruitment are likely to remain on hold until stability returns.”

In the labour market, sluggish levels of private sector recruitment will be unable to offset job losses in the public sector, argues the report.

ITEM say that unemployment will be just shy of the 3 million mark in the first half of 2013, representing 9.3% of the UK’s labour force.

Professor Spencer added: “We are expecting to see another 300,000 unemployed this year, which is relatively modest when compared to the increase in 2009, but this is adding to an already lengthy dole queue.

“The only piece of good news for UK households is that inflation should fall back below 2% this year, as commodity prices weaken and the VAT rise drops out of the calculation.

“We will have a bit of extra cash in our pockets, but concerns over rising unemployment are unlikely to see consumers rushing back out onto the high street.”

As exports accounted for most of last year’s growth, adding 0.9 percentage points to GDP, exports to markets outside of Europe will be vital to the UK recovery, said the report.

This is despite worries over political uncertainty in China and other emerging markets in 2012.

It was suggested that firms who are looking forward to a return to business as usual are in for a “nasty shock.”

The predicted 3% growth in exports will depend heavily on the UK’s ability to continue to re-orient exports away from the Eurozone to the likes of India and Indonesia.

Mark Hatton, office managing partner at Ernst & Young in Newcastle, said: “Many North East companies already manufacture for export.

“However, they rely heavily on traditional trade partners in the Eurozone, and must alter the ‘business as usual’ approach. It is imperative they assess their long-term business models and adapt them in a manner that prepares them for new markets.

“No-one can say for certain how the Eurozone crisis will pan out. Doing nothing is simply not an option.”

This was posted in Bdaily's Members' News section by Tom Keighley .