UK 'on brink of modest recession'

 

Britain is on the brink of a modest recession that will be followed by months of stunted growth, a bleak forecast from the OECD said today.

Predicting that the UK will endure another period of contraction, the Organisation for Economic Co-operation and Development said GDP will shrink in the final quarter of 2011 and the first quarter of 2012.

It slashed the UK's 2012 growth to just 0.5% from 1.8% earlier this year and said it expects unemployment to hit 9.1% by 2013, putting another 400,000 people out of work.

The OECD said the eurozone debt crisis was "the key risk" to the world economy and warned the slowdown in global growth is in danger of escalating into a full-blown recession without "decisive action" to shore up the currency bloc.

It said the eurozone already appears to be in a mild recession and it now expects the currency bloc to grow just 0.2% in 2012, down from its previous estimate of 1.6%, in a major blow for the UK's export hopes.

OECD chief economist Pier Carlo Padoan said eurozone leaders had failed to take urgent action to tackle "the real and growing risks to the global economy".

He called for a "substantial" increase in the eurozone bailout fund and for the European Central Bank to play a greater role in shoring up the finances of debt-ridden nations to prevent the crisis dragging the world economy down.

With growth in the UK hit by weak demand for exports, the Government's austerity measures and the squeeze in consumer spending, the OECD expects the Bank of England to pump a further £125 billion into the economy in the coming months, bringing the total to £400 billion.

The UK's slump is set to be modest compared with the 2008/09 recession and the economy is likely to start recovering after two quarters of decline. GDP growth of 1.8% is forecast in 2013.

But there is a risk that the downturn will be deeper than projected, as the eurozone debt crisis has the potential to hit the banking sector and weaken confidence.

It warned that the Government should be ready to pump more money into banks if the financial crisis worsens.

The OECD also said unemployment, which currently stands at 8.3% - its highest since 1996 - will rise to 9.1% in 2013, putting another 400,000 workers out of a job on top of the 2.6 million already unemployed.

Employment is likely to take a bigger hit than in the last recession because businesses have less scope to reduce wages and adjust the amount of time employees' work.

The OECD called on the Government to pump more resources into employment training to help mitigate the impact of rising unemployment, particularly for young people who are already suffering a 20% rate of joblessness.

Chancellor George Osborne may also have to consider easing his programme of spending cuts if the economy worsened but will still have to increase austerity measures later to ensure medium-term targets are met. It suggested the Government could further increase the retirement age to improve long-term prospects.

The Chancellor, who is tomorrow due to report a series of measures to boost the economy in his Autumn Statement, said: "What is clear from the OECD is that these are very difficult times for many countries in the Western world.

"The OECD is predicting deep recessions in many European countries. That is a challenge for Britain.

"What we can do with our policies is take Britain safely through this storm. But we have got to lay the foundations for future economic success."

France, Germany and Italy are predicted to suffer contractions as the eurozone debt crisis worsens.

Emerging nations are growing more slowly than previously thought and there was also a danger the US could slip back into recession amid its austerity measures, according to its forecast.

Prime Minister David Cameron will travel to Paris on Friday for talks on the eurozone crisis with President Nicolas Sarkozy ahead of next week's crunch summit of the European Council.

A Treasury spokesman said: "The UK economy is not immune to the turbulence in the eurozone and its impact on British businesses, but the difficult decisions taken by the Government has made the UK a relative safe haven in the sovereign debt storm and helped to keep interest rates at record low levels for businesses and households.

"The Government is using all levers to protect the UK economy."

PA

Suggested Topics
Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Senior Accounts Assistant - Accounts Payable - St. Albans

£26000 - £28000 per annum + benefits : Ashdown Group: Senior Accounts Assistan...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Recruitment Genius: Installation and Service / Security Engineer

£22000 - £40000 per annum: Recruitment Genius: This company is part of a Group...

Recruitment Genius: Service Charge Accounts Assistant

£16000 - £18000 per annum: Recruitment Genius: Are you a a young, dynamic pers...

Day In a Page

General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions