Warning of approaching recession

The UK economy is facing the very real prospect of a recession, the British Chambers of Commerce (BCC) has said.

Publishing its latest economic forecast, the BCC argued that there was a distinct possibility of two quarters of negative growth between now and next March, pushing the economy into a technical recession.

The BCC reduced its predictions for overall growth this year to 1.3 per cent and for 2009 to 1.1 per cent.

Unemployment is also set to rise. According to the BCC report, the downturn could see the numbers out of work climbing by 250,000 or as many as 300,000 over the next 18 months, with the jobless total breaching the two million mark.

The BCC urged the Bank of England to cut interest rates as a way of stimulating consumer activity and heading off an even sharper downturn.

David Frost, the BCC’s director general, said: “Whilst a marked slowdown in activity is likely over the next 18 months, even if interest rates are cut when inflation peaks, the correct policy decisions are still needed to ward off the threats of a serious and prolonged recession.

“The longer the MPC waits before cutting rates, the bigger the danger that the economic situation would deteriorate.”

Mr Frost added: “Over the next two or three quarters, we expect UK GDP growth to be slightly negative or zero. Thereafter, we expect a shallow recovery, but the period of weak, below-trend, growth is likely to be prolonged, lasting until the final months of 2009 or early in 2010.

“Our view is that the threats to growth are more serious and more immediate than the risks of higher inflation. The UK economy urgently needs an interest rate cut to counter threats of recession. Our central scenario envisages that the UK Bank Rate would be cut to 4.75 per cent in quarter four 2008, followed by an additional cut to 4.50 per cent in quarter one 2009.”