Hard times for UK economy, but no recession

While the UK economic news has been particularly gloomy over the last week, much of the evidence suggests that the country will avoid a recession.

The latest forecast from the International Monetary Fund puts GDP growth in the UK at 1.5%. This may be weaker than the Chancellor’s earlier forecasts, but it is still much healthier than the 1.5% fall in GDP seen in 1991, while Britain was going through recession.

There was also a very different background to the recession in the early 90s than is the case today. House prices fell by 20%, repossessions soared and interest rates peaked at 15%.

Growth forecasts from the International Monetary Fund for 2008 and 2009 suggest the economy is not going to experience anything like the troubles of earlier recessions.

However, the impact of the global credit crunch means there may be higher interest rates for house buyers, despite the Bank of England cutting rates to 5%.

According to Ruth Lea, economic advisor for the Arbuthnot Banking Group, this will be perceived as more unpleasant than it really is. She commented: “The current tightness seems all the more painful in comparison with the exuberant, heady days of … unsustainably easy credit when lending criteria were too undemanding.”

Ms Lea also pointed out that the UK housing market is different from the conditions in the US, and is unlikely to experience a similar crash.

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