Both the ITEM Club and the CEBR predict a big struggle for the economy this year, with the CEBR forecasting interest rates will stay on hold until 2016.
The UK is already in recession, according to two reports released today - one by economic forecaster the ITEM Club and one by the Centre for Economics and Business Research (CEBR).
The ITEM Club report predicts that UK GDP will have fallen by 0.2% in the final quarter of 2011 and will fall by 0.15% in the first quarter of this year. But the report says this will not be a “serious double dip”. It forecasts modest growth of 0.2% overall in 2012 with an increase to 1.3% in 2013 and to 2.8% in 2014.
Meanwhile, the CEBR has revised its forecast for the year from growth of 0.7%, which it predicted in October, to a 0.4% dip. It predicts growth of 0.9% in 2013.
Back in November, the Office for Budget Responsibility forecast 0.9% this year, 2.1% in 2013 and 2.7% in 2014.
The first official estimate of GDP for the final quarter of 2011 is released on 25 January.
The Eurozone crisis and the knock-on effect on UK exports, allied to the fact that other emerging markets aren’t likely to drive a recovery, are two main reasons cited for the gloomy forecasts.
And the CEBR report predicts that interest rates will stay at their record low of 0.5% until 2016, with more money continuing to be pumped into the economy via the Bank of England's quantitative easing scheme.
There are also forecasts of more job cuts if the economic situation deteriorates further, with new private sector jobs unlikely to outweigh job cuts in the public sector.
Our disposable income will fall by 0.8% this year and we’ll continue to cut back on our spending as a result, the ITEM Club report predicts.
On a more positive note, the ITEM Club report says that inflation should back fall in line with the Bank of England’s 2% target in the third quarter of the year. The CEBR predicts it will down to 1.7% by the fourth quarter of the year. But this drop is partly due to January 2011’s increase in VAT to 20% dropping out of the calculations.
What do you think will happen to the economy this year? Have your say in the Comments box below.
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