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Britain's economic outlook worsens
(Agencies)
Updated: 2008-11-18 09:37 LONDON -- The recession in Britain will be longer and deeper than first thought, the country's leading business lobby warned Monday, as a separate survey showed that falls in house prices are picking up pace.
The Confederation of British Industry predicted that the economy will shrink 1.7 percent in 2009, a steep downward revision from the 0.3 percent growth it pegged in a forecast just two months ago. As leading property Web site Rightmove PLC added to the gloom with a survey showing that house prices are now falling at the fastest pace since 2002, Prime Minister Gordon Brown gave further hints that large-scale tax cuts can be expected in a budget update by the government next week. "It is right that we support families and businesses through what is a world economic downturn," Brown said, noting there is a need for an urgent fiscal stimulus. Analysts expect Treasury Chief Alistair Darling to flag up cuts of around 15 billion pounds ($22.4 billion) in his pre-budget report to Parliament on Monday. John Cridland, the CBI's deputy director-general, said the speed and force of the downturn had forced the group to reassess the coming recession, which it had previously expected to be "short and shallow." That prediction was made before the collapse of US investment bank Lehman Brothers plunged the global banking sector further into turmoil. Its new report also predicts that the number of unemployed people will rise by nearly 1 million next year to peak at close to 2.9 million. "The recession here in the UK looks to be deeper and longer lasting than we predicted only two months ago," Cridland said. Rightmove, the country's most used property Web site, said that sellers had cut their asking prices by 2.9 percent over the past month, the biggest drop ever recorded for November, and warned that sellers were still failing to price their properties realistically. The average home coming on to the market in England and Wales cost 223,000 pounds ($333,000) during the four weeks to November 8, 7.1 percent less than a year ago. As evidence of a severe economic slowdown mounts, the CBI said it expects the Bank of England to lower interest rates again before the end of the year by up to 0.5 percentage points. The central bank, which earlier this month noted that Britain is likely already in recession, has slashed the benchmark rate by a total of 2 percentage points in the past two months, bringing the rate down to a more than 50-year low of 3 percent. The bank has moved to cut rates both as the economy slows and the threat of inflation recedes. It last week forecast that inflation will fall from 5.2 percent currently to just below 1 percent, half the government's target, in two years. Brown has rejected claims from the opposition Conservative Party that borrowing now to pay for tax cuts and additional spending will store up economic problems for Britain in the future. He has insisted that any extra borrowing now would come in the context of a "medium-term framework of fiscal stability," a comment that many observers interpret as an admission that taxes will need to rise once the economic crisis is over. Rightmove held out a glimmer of hope for the economy, however, suggesting that expectations of further rate cuts could lead house sales to pick up in 2009. |
