In its latest quarterly economic forecast, the ever-cheerful BCC said that there has been a ‘significant worsening in UK economic prospects’ in the last few months. It’s now predicting zero or negative growth over the next few quarters, meaning that there’s a ‘distinct possibility of technical recession’. And unless the Bank of England acts quickly and cuts rates, it reckons we could face a ‘serious and prolonged recession’. Just what we needed to hear on a Monday morning…
Even in a best case scenario - where interest rates are cut and inflation peaks at around the current level of 4.4% - the BCC said it was still expecting ‘a marked slowdown in activity’ in the next 18 months as output declines and consumer confidence continues to plunge. The BCC reckons this will have serious consequences for unemployment level, which it thinks will rise by up to 300,000 to around 2m in the next two to three years.
To avoid a ‘technical’ recession (two successive quarters of negative growth) turning into something altogether more nasty, the trade body says that the Bank has to get its act together. ‘Our view is that the threats to growth are more serious and more immediate than the risks of higher inflation,’ said its economic adviser David Kern. ‘The UK economy urgently needs an interest rate cut to counter threats of recession.’ It’s demanding a cut in the last quarter of this year, and another at the start of 2009.
The Bank’s in a bit of a tight spot, of course, given that its main goal is to keep inflation under control. It’s already failing miserably to do this (with the headline rate now heading rapidly for 5%), and cutting interest rates is likely to make the task even more difficult. It’s probably also worried about weakening the pound and propping up the housing market (which everyone agrees is a bubble that urgently needs deflating). Then again – if it doesn’t, the UK’s growth prospects for the next year could start looking even grimmer than they do already.
The ‘good’ news for glass-half-full types like us is that BCC director general David Frost reckons that if the Bank does indeed start cutting rates sharp-ish (as the US Federal Reserve has done), there’s no reason why things should get as bad as they were in the early 1990s. Though whether that will be enough to keep Gordon Brown in a job remains to be seen…
In today's bulletin:
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Cut rates or else, warns BCC
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