Britain is set to plunge into recession this year
LONDON – The UK economy will fall into recession during the second half of this year, according to the Organisation for Economic Co-operation and Development (OECD).
Britain is expected to perform the worst of the world’s richest nations, with its economy predicted to shrink by 0.3 per cent in the third quarter and by 0.4 per cent in the final three months of the year.
The definition of a recession is two successive quarters of negative growth, according to the Paris-based economic organisation.
According to official UK data released last month, the economy came to a standstill during the second quarter of 2008. The longest period of uninterrupted economic growth in British history has ended, leaving the country on the brink of recession.
Almost two decades of increasing employment, disposable income and house prices ground to a halt in June, figures from the Office for National Statistics showed.
Now the OECD is forecasting that Britain will fall into a recession, although it does not use the word, while the US, Japan, Germany, France, Italy and Canada will slow, at worst, to a standstill during the rest of this year.
Jorgen Elmeskov, acting head of the economics department of the OECD, said that economic activity in the UK was expected to remain "broadly flat".
"Financial market turmoil, housing market downturns and high commodity prices continue to bear down on global growth," Mr Elmeskov said in comments accompanying the OECD’s latest interim assessment of the economic outlook for the seven member nations.
"The eventual depth and extent of financial disruption is still uncertain, however, with potential further losses on housing and construction finance being one source of concern," he said.
The US will see growth slow to 0.9 per cent in the third quarter and 0.7 per cent in the last three months of the year.
Europe’s biggest economy, Germany, will come to a standstill in the third quarter and edge ahead just 0.1 per cent in the fourth, the OECD said.
The OECD is forecasting the UK economy to grow by just 1.2 per cent in 2008, well down on its earlier forecast of 1.8 per cent.
Last month the International Monetary Fund predicted the UK economy would grow 1.4 per cent this year.
There have been a series of gloomy economic forecasts about the UK economy in recent months.
Mervyn King, Governor of the Bank of England, said last month that the country would experience at least one quarter of negative growth in the coming year, while the British Chambers of Commerce has explicitly warned that Britain’s economy wil enter a recession within the coming year.
Tthe pound slumped today to its lowest level against the euro since the single currency was introduced in 1999, following a warning from Alistair Darling, the Chancellor, that the UK was facing its biggest economic challenge for 60 years.
Mr Elmeskov said that the basic message from his organisation was that the economy of the G7 club of industrialised nations was very weak.
"Continued financial turmoil appears to reflect increasingly signs of weakness in the real economy, itself partly a product of lower credit supply and asset prices," Mr Elmeskov said.
The monetary policies being pursued by central banks at the moment were appropriate in current circumstances, the OECD said, referring primarily to the United States and euro currency zone where the European Central Bank (ECB) sets rates for 15 countries.
The Federal Reserve has slashed US interest rates while the ECB’s last move was a rise. Courtesy of the Timesonline (UK)