The confederation of British Industry have proclaimed that the UK economy will shrink at almost twice the pace previously forecast this year as the credit famine plunges the nation deeper into the worst recession in almost 30 years. GDP will contract 3.3%, instead of the 1.7% predicted in November, the biggest U.K. business lobby said today. This means that by the end of 2009, the economy will have contracted for six consecutive quarters. Richard Lambert, the CBI’s director general, told the press in London that the UK is “Faced with a global confidence crisis, a rapid fall in demand and credit constraints, U.K. firms have been forced to scale back investments and cut jobs.” Government net borrowing will balloon to £148.7 billion in the next financial year, or 10.6% of GDP, and then rise to 11.8% of GDP the following year, the CBI said in the forecasts. This contradicts the view of The Chancellor, Alistair Darling, said in November that borrowing would be 8 % of GDP in the year ending March 2010. Also in a report this morning, Oxford Economics said that the recession will damage Britain’s long-term growth prospects. GDP will grow 2.1% a year on average between the second half of 2006 and the final two quarters of 2018, compared with an average 2.9 % expansion in the previous economic cycle, the report showed.
Asking prices for homes on sale in Britain are said to have risen by 1.2 per cent last month. According to Rightmove, the property website, which revealed the increase, it is down not to a much-wanted revival but to a burst of “false optimism” among those marketing their properties and a chronic shortage of new homes coming on to the market. In the past four weeks 45 % fewer properties were put up for sale than in the same period last year – 75,140 new homes, compared with 137,442, property website Rightmove found. Rightmove believe that this lack of competition had prompted both sellers and agents to become more bullish by increasing asking prices, despite predictions that house prices have a further 10% to fall. Asking prices recorded by Rightmove increased from £213,570 in January to £216,163 this month, compared with an average sales price of £184,333, according to the Centre for Economics and Business Research. Asking prices in London rose by 0.3%, from £386,653 to £387,988. Rightmove said that national asking prices were down by 9.1% on average over the year – the biggest annual fall it has ever recorded – but noted that properties are selling once 25% has been knocked off the peak price.
Elsewhere in the world, Japan has revealed that it sank deeper into recession with its worst quarterly contraction in 35 years, data showed on Monday, its reliance on exports and soft domestic demand dragging down the world's second-largest economy. The G7 financial leaders meeting in Rome, fearing another 1930s-style resurgence in protectionism, pledged at the weekend to do all they could to fight recession, but major world economies still faced the biggest downturn in decades. Such fears were expected to be high on the agenda for the new U.S Secretary of State, Hillary Clinton, when she arrives in Tokyo on Monday for her first foreign trip. New U.S. stimulus measures about to be signed into law include a "Buy American" provision. With both the U.S. and Japanese interest rates already close to zero, G7 leaders are having to look beyond conventional economic tools once they can't cut rates any further, with a possible return to Japan's experiment with quantitative easing earlier this decade. ECB President Jean-Claude Trichet foreshadowed "non-standard measures" to tackle the crisis, but said the ECB had not drawn any conclusions after discussions with other central banks. "I have said that I did not exclude additional non-standard action, but no decision has been taken yet on top of the non-standard action we have already decided to do and we will see." Trichet gave no concrete plans, but it was hoped he would provide more clues with an address later this afternoon.
CFX Team
0800 587 8722
cfx@raphael.co.uk
www.raphaelsbank.com/cfx
This newsletter is the personal view of Raphaels Bank and nothing herein should be construed as a recommendation or advice. The Bank accepts no responsibility for the correctness or otherwise of any matters contained herein.
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