Economy willl stuggle to avoid recession

The Ernst & Young ITEM Club summer forecast sees an economy that will struggle to avoid recession in 2009 with predicted GDP growth of 1.0 per cent.

ITEM expects inflation to remain above the target range of 1 to 3% for the next 12 months and there will also be a substantial increase in the numbers of unemployed.

Peter Spencer, Chief Economist to the Ernst & Young ITEM Club says, "Both on the high street and in the housing market it is going to get a great deal worse before it gets better. We have already seen a housing crisis that has morphed from a credit crunch to a general collapse in confidence as prices have tumbled. Our worry is that without the usual medication from the Bank of England - which would have nasty inflationary side effects in this environment - the consumer will follow suit, moving from their current state of denial into a state of despair."

"Households will be lucky to see real disposable income growth of 1% this year, with perhaps 1½% in 2009. With credit repayments becoming more onerous, the forecast shows consumer spending growing by just 0.2% next year. Rising inflation, the limited availability of credit and sharp reversals in the housing and equity markets mean that consumers are coming under increasing pressure."

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