Serious chance of relapse within economy warns think tank
The Ernst & Young Item Club, the influential think-tank, said the UK economy is heading for a ‘fragile recovery’ and is predicting that the economy will contract by 4.5% this year – the biggest fall in any year since 1945.
The prediction is far more pessimistic than the one from the Government who is forecasting a 3.5% fall this year.
However, the Item Club is predicting a modest recovery for next year with 0.5% growth, followed by 2% in 2011.
Earlier this month, official figures revealed that the UK economy shrank by 2.4% in the first three months of 2009 – far worse than expected and the biggest quarterly decline in 51 years.
Meanwhile, the think tank warned that hopes of economic recovery are “running ahead of reality”.
Professor Peter Spencer, chief economic adviser to the Item Club, warned that any recovery could be short lived and “it remains unclear how quick and complete recovery will be, and there is still a serious chance of relapse.”
Earlier this month, the British Chambers of Commerce (BCC), the leading business group, also voiced its concern about a recovery in the UK.
While the group believes that the worst of the UK’s recession is over, it said talk of a recovery is “premature”.
The BCC believes there is a risk that the economy could “drop off suddenly” and the UK could be heading towards a double-dip “W-shaped” recession.
Meanwhile, returning to the Item Club, the organisation has warned of the threat posed to the economy from swine flu. The flu could wipe out any growth next year, with a worst case scenario of a further 1.2% contraction, according to the organisation.
In addition, the director general of the BCC, David Frost, has warned that small and medium size businesses are particularly vulnerable to the flu.
He told Sky News: “After a dramatic decline in the economy there is a touch more confidence coming back. But if swine flu does really take off then it will act as a major dampener on any upturn as we pull out of this recession. Small businesses are particularly vulnerable.”