23/01/12

By Andrew Holt

New forecasts released today by The Centre for Economics and Business Research (Cebr) indicate that the UK economy is already in recession with negative GDP growth in Quarter 4 2011 and Quarter 1 2012.

The think-tank has also revised down its forecast for growth for 2012 as a whole from 0.7% growth as predicted last October to a decline of 0.4% with a risk of a more serious decline of 1.1% if developments in the Euro zone are especially negative.

Cebr also forecasts sluggish growth in the medium term, growth in 2013 is forecast to be minimal at 0.9% and from 2014 onwards at around 1% per annum.

Inflation is forecast to fall to 1.7% by Quarter 4 2012 and to remain around 2% thereafter despite rising commodity prices and a weak pound.

Unemployment is forecast to rise sharply to about 3 million in 18 months time as companies batten down the hatches for the long term and revise their medium expectations of labour requirements.

Base rates are expected to remain at 0.5% to 2016, while increased quantitative easing to a total of £400 billion is expected for 2012 with the possibility of more in future years.

Scott Corfe, Cebr senior economist and main author of the report, commented: ”We see a weak outlook for sterling. But of course the euro and the dollar are also likely to be weak, so the main weakening is likely to be against the Asian currencies and the commodity based currencies. We see the Western currencies falling by about 30% vs the renminbi to 2016 and by 15-40% against commodity based currencies.”

Douglas McWilliams, one of the report’s authors and chief executive of Cebr, added: “We take no pleasure in outlining such a bleak forecast. But the world is going through a fundamental change where previously poor economies are industrialising fast. This is good news for them, but because of the limits imposed by shortages of energy, minerals and food, some of their growth is at our expense.

“This is not to say that if we break off trading with them we will be better off. On the contrary, a strategy of disengagement with the rest of the world would make matters very much worse.

“The Chancellor will not reduce the deficit as quickly as he thinks since tax revenues will be depressed by slow growth.

"But this does not make the case for giving up on austerity. Indeed our forecast, which shows that the UK debt to GDP ratio will go above 90%, means that he will at the minimum have to keep the austerity programme going for much longer than he originally thought.”

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