Forecast for UK economy is ‘gloomy’
Ernst & Young ITEM Club is forecasting GDP growth of just 1% next year after the UK grapples with rising inflation, falling property prices and the tightening of credit.
The influential think tank also indicated that there will be a considerable increase in unemployment in the next 12 months.
Ernst & Young’s ITEM Club also predicts that consumer spending will almost grind to a halt. Chief economist, Peter Spencer, said he sees the situation in the housing market and on the High Street to deteriorate before it improves.
Consumers will reduce their spending on non-essential items due to rising food and energy costs. Mr Spencer added that the leisure sector will affected particularly badly.
A report this weekend from Sir Win Bischoff, chairman of Citigroup, is predicting that house prices in the UK and the US will continue to fall for a further 2 years.
Ernst & Young’s ITEM Club added that it believes unemployment will rise from 1.6 million at the end of 2007 to 2 million by 2010.
There are already signs that unemployment is on the rise after figures last week from the Office for National Statistics (ONS) revealed that unemployment in the UK increased by 12,000 to 1.62 million in the 3 months to May.
The figures are the worst for 16 years after the amount of people claiming unemployment benefit rose by 15,500 in June to 840,100. Economists believe this could exceed a million by the end of 2009.
In the three months to May, 118,000 people were made redundant, up 10,000 on the 3 months to April.
In the last fortnight alone, housebuilders including Persimmon, Barratt’s, Bovis and Redrow all announced job losses due to the housing slowdown while Wolseley, the world’s largest distributor of plumbing materials, announced further job losses as a result of the property slump.
JCB, one of the largest construction equipment manufacturers in the world, has announced 650 job losses this week. The company has experienced a severe fall in demand for its products.
However, on the positive side, Ernst & Young’s ITEM Club said the financial pressures facing households and business are still not as bad as those that preceded the early-1990s recession.