UK will narrowly avoid recession - report
The UK economy will narrowly avoid falling into recession, according to new research.
The Ernst & Young Item Club quarterly forecast said that despite a raft of bleak economic indicators, the UK economy was holding up.
Professor Peter Spencer, economic adviser to the report, said one of the most important elements was the strength of consumer confidence.
He said it was ‘‘a bit perplexing’’ why the UK shopper was still upbeat in the face of so much downbeat economic news.
But he concluded that sound economic fundamentals, such as a firm housing market and falling interest rates, meant British confidence was still high.
The Prime Minister Tony Blair also got a pat on the back - Prof Spencer said Mr Blair’s ‘‘strong leadership’’ since September 11 had helped steady consumer nerves.
The Item Club forecast, which uses the Treasury’s model of the economy, said GDP growth would be 2.2% this year, slowing to 2% next year.
But it called on the Bank of England to hold off cutting interests - currently at 4.5% - and said it should instead ‘‘wait and see how the economic situation unfolds’’.
Prof Spencer conceded consumer confidence and the housing market were likely to weaken but added they would be ‘‘far from collapse’’.
And despite the forecast slowdown in growth, it was predicted to move back up to 2.9% in 2003.
Sushil Wadhwani, a member of the Bank of England’s monetary policy committee, said rates had to fall further to head off global economic slowdown.
He said: ‘‘The evidence we have had since September 11 suggests the global economy was even weaker than we had thought prior to then.’’
The MPC will make its decision on interest rates at the beginning of November.
