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Risk of recession still low

According to a recent report the risk of a recession hitting the UK is still low, despite the expectation of a sharp downturn in the economy over the course of 2008.

The data comes from a report from the Ernst and Young ITEM Club, and predicts a 1.8% expansion in the economy over the course of this year compared with the 3.1% expansion last year. The report also predicted that interest rates would fall in order to address the downturn in the economy.

The report went on to state that investment from Asia and the Middle East could help to ward off a recession in the UK. The report read: "We have been living well beyond our means, lured by the offers of cheap no-questions-asked credit. The reversal in the credit markets in 2007 could lead to a sharp fall in economic growth, but we believe there is room for interest rates to be cut to cushion this."

It is likely that the Bank of England will cut interest rates three times over the course of the year, taking them from the current 5.5% to 4.75% according to the report. It added that funding from wealthy places such as China, Singapore, Dubai and Abu Dhabi could help to ease the effects of the credit crunch, which have seen lending conditions become tight. It read: "Each week brings more multi-billion dollar investments that are helping many of the financial institutions that have been seriously hit by debt write-offs."

One official linked to the ITEM club stated: "The Treasury failed to take advantage of years of good growth to put our public finances on a sounder basis, so our ability to respond by easing fiscal policy has been compromised."

Tom Smith
23rd January 2008

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