BCC warns of prolonged recession
The British Chambers of Commerce (BCC) has warned that the recession in the UK will be prolonged with a sharp rise in unemployment.
The organisation said that gross domestic product (GDP) in the UK will fall by 1.6% next year, with a peak-to-trough fall of 2.5% throughout the recession. The group is forecasting a modest recovery in 2010 with a 1.1% increase in GDP.
Meanwhile, unemployment is set to soar to almost three million. According to the BCC, the number of unemployed people could increase to 2.95 million in the third quarter of 2010. This will take the unemployment rate up from its current level of 5.8% to 9.6%.
The BCC’s warning follows the Bank of England’s quarterly inflation report, published last week. The Bank warned that the UK is heading for a prolonged recession.
According to the Bank’s Governor, Mervyn King, it is very likely that the UK economy entered a recession in the second half of this year, and added that it is difficult to know precisely how long it will last.
As a result of a prolonged recession, Mr King said the Bank is prepared to cut interest rates further. Many economists believe interest rates could hit a record low of 1% next year – the lowest rate since the Bank was established in 1694.
Last week, the Bank slashed UK interest rates from 4.5% to 3% – a much more significant reduction than the market had expected.
The BCC is expecting that the Government will introduce a stimulus package of between £12 billion and £18 billion, in a bid to boost the economy. However, the BCC warns that if the package is inadequate or lacks credibility, then the recession could be worse.
It is expected that Chancellor Alistair Darling will announce fiscal stimulus measures in his Pre-Budget Report later this month.