UK already in recession, says top economist

Peter Spencer, the chief economist at Ernst & Young, has claimed that Britain is in a recession that could last for a year.

The forecast by the Ernst & Young Item Club said that the economy fell sharply in the last quarter. This pattern is expected to continue for three more quarters, before bottoming out in the second half of next year.

Mr Spencer expects a slight recovery in 2010. He said: “Gordon Brown may have won plaudits for stopping the meltdown in the banking system over the last few days, but we now have to face up to the reality of an economy that has been seriously weakened by recent dramatic events.

“The effects of the credit crisis are spreading out from the financial and housing sectors and affecting every part of our domestic economy.”

The Ernst & Young Item Club is the only economic forecaster to use the same model as the Treasury. It expects that the following year will see unemployment rise, business investment fall and household incomes freeze. On the bright side, inflation is expected to fall, which will allow the Bank of England to cut interest rates.

As Mr Spencer said: “With plunging interest rates, falling inflation, a fundamentally strong economy and some sort of stability in the banking system, it should be a relatively short and shallow downturn.”

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