UK going into recession, says European Commission
PA
Wednesday, 10 September 2008
The UK economy will fall into recession this year, the European
Commission predicted today.
The commission - the executive branch of the EU - said UK gross domestic
product (GDP) will shrink by 0.2 per cent between July and September,
and another 0.2 per cent during the final three months of the year. That
meets the definition of a recession as two successive quarters of
negative growth.
It follows another UK recession warning from Paris-based think tank the
OECD last week.
The UK's economic performance over the second half of this year is worse
than the euro area's predicted average growth, which will be flat over
the third quarter and edge up 0.1 per cent in the fourth.
The EC also downgraded the UK's annual GDP growth this year, from 1.8
per cent to 1.1 per cent. This compares with a 1.3 per cent average for
the euro zone.
Spain will join the UK in recession by the end of this year, the EC
added.
Europe's biggest economy Germany entered recession in the second quarter
of this year, the body said, but will recover marginally during the
fourth quarter.
Explaining the basis for the forecasts, the EC said: "Tensions in
financial and asset markets, ongoing moderation of growth in the world
economy, the elevated levels of commodity prices and a widening housing
shock are taking a toll."
The OECD forecast the UK economy would contract 0.3 per cent in the
third quarter, and by 0.4 per cent in the fourth on an annualised basis.
The forecast made "significant revisions" for economic growth prospects
for the rest of the year in Spain and Britain, largely due to the
countries' housing market woes.
UK house prices have fallen nearly 13 per cent year-on-year, Nationwide
Building Society said last week, severely impacting consumer confidence.
The EC said: "A downturn in housing markets is likely to affect overall
economic activity adversely."
About the UK's prospects this year, it added: "GDP growth in the second
half of 2008 is expected to turn negative, with output contracting
slightly in each quarter, driven by a continued weakening of domestic
demand.
"Private consumption is likely to fall somewhat due to the combined
impact of tighter credit conditions for household borrowing, weakening
housing and labour markets and inflation-induced stagnation in real
disposable income."
Official UK data showed the economy ground to a halt during the second
quarter. Inflation is also forecast to rise to around 5 per cent by the
end of this year.
The EC interim forecast is based on updated projections for Germany,
Italy, France, Britain, Poland, Spain and the Netherlands, which
together account for around 80 per cent of the European Union's GDP.
Joaquin Almunia, the EU's economic and monetary affairs commissioner,
said the economic outlook remains fragile, but added that a recent drop
in the euro against the US dollar and a drop in oil prices are providing
some relief.
But he said oil and food prices have risen to record highs, fuelling
inflation and putting a hamper on growth this year.
"The continuing turmoil in the financial markets one year on, the near
doubling of energy prices over the same period and the correction in
some housing markets have had an impact on the economy," Mr Almunia
said.
Bank of England Governor Mervyn King said last month the UK economy
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 will enter a recession within the coming year.
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Wednesday, 10 September 2008
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