UK recession set to be confirmed

The UK is set to go into recession on Friday 23rd January 2009

The Press  Association

The UK's slide into recession is due to be confirmed on Friday when output figures for the fourth quarter of 2008 are released.

The contraction in Britain's economy for the final three months of the year follows a 0.6% decline in GDP for the third quarter - a 'technical' recession as defined by two successive quarters of negative output.

Experts, including the deputy Governor of the Bank of England Sir John Gieve, have warned that the contraction will be sharp.

Most economists are forecasting that the economy shrank at double the pace seen the previous quarter.

A 1.2% decline in GDP would be the worst performance since the third quarter of 1990, at the height of the last recession, when GDP also fell 1.2%.

However, some experts are warning that the decline could be as much as 1.3%, which would be the biggest fall in more than 28 years.

GDP would last have fallen by more in the second quarter of 1980, when it plunged by 1.8%. The annual rate of output in 2008 is also set to make for grim reading in what will be a far cry from the 3% seen in 2007.

It will also make the Treasury's initial forecasts for growth of between 2% and 2.5% look woefully optimistic.

This year is predicted to be far worse, with the economy forecast by some to shrink by 2% or even closer to 3% in what could be the biggest decline since the Second World War.

In a week dominated by economic news, inflation figures are also due out on Tuesday and minutes of this month's Bank of England interest rates meeting will follow on Wednesday.

The reduction in VAT together with the recession's impact on demand and firms' pricing power is set to have pulled inflation down again sharply, to 2.6% in December.

The predicted drop in the Consumer Prices Index (CPI) marks an exceptionally steep decline on the 4.1% seen in November and will likely lead to further fears over deflation.

article sourced from The Press Association