Recession to hit Britain this year: European CommissionSeptember 11th, 2008 - 2:18 pm ICT by IANS
London, Sep 11 (IANS) Recession will hit Britain with its economy expected to shrink in the second half of this year, the European Commission (EC) has warned.If true, the country will be experiencing recession for the first time since the 1990s and will join the ranks of the worst-performing economies of Europe.
The Commission has also cut growth forecasts for other European countries like Spain and Germany. However, Britain is ranked among the hardest-hit economies, with an expected fall in output in the third and fourth quarters of the year.
A recession is defined as two consecutive quarters of shrinking output. Britain is already reeling under the impact of high commodity prices, turmoil in financial markets and slumping house prices.
According to the EC, Britain is set to slow even more rapidly, cutting its growth forecast from 1.7 percent to only 1.1 percent. This is a stark reversal from last year, when Britain’s economic growth outpaced the eurozone’s by a margin of 0.5 percent. Indeed, Britain has underperformed eurozone growth in only two other years since Labour came to power in 1997.
The Times quotes official figures to say that the British economy has already ground to a halt, ending 16 years of consecutive growth, failing to grow at all between April and the end of June. Dismal news from manufacturing and service companies over recent weeks has heightened fears that the economic downturn is set to intensify.
There was more disappointing news Wednesday as it emerged that the falling pound had not significantly boosted exports in July. Economists fear that slumping demand could also curb the benefits of British goods becoming cheaper abroad in the months to come.
Paul Dales, of Capital Economics, a financial consultancy, says: “A major surge in exports over the next six months or so seems unlikely when the eurozone, the UK’s largest export market, remains so weak”.
Last week the Organisation for Economic Cooperation and Development said that Britain was set to fall into recession this year in the worst economic performance of any of the richest G7 nations.
Economists say that slumping activity is likely to prompt a rise in unemployment, with the British Chambers of Commerce saying that unemployment could rise by 300,000 and even top two million by the end of the year - levels not seen since Labour came to power in 1997.