The UK is expected to confront its weakest growth period in over 15 years, Deloitte warns.
In the latest Deloitte Economic Review, the firm’s economic adviser Roger Bootle predicts growth in 2008 and 2009 to slow to levels seen in the recession days of the early 1990s.
Bootle expects the UK economy to expand by just 2% this year, falling to roughly 1.7% in 2009.
“The economy has looked vulnerable to a major adjustment for some time, given the sizeable imbalances which have built up,” he says.
“The slowdown in 2005 looked like such an adjustment, but turned out to be just a pause.
“There are number of reasons not to expect such a lucky escape this time.”
Bootle says the global economic environment is in worse shape than a few years ago, due most notability to the weakness in the US economy.
“Relative strength in the euro-zone and Asia will not fully offset the impact of the US slowdown on the UK’s external sector,” he says.
“At the same time, the UK housing market looks vulnerable to a more serious downturn than the short slowdown seen in 2005.”
Despite predating a sharp slowdown, Bootle does not believe the UK will plunge into recession.
“One important factor which should help to prevent a full-blown recession is the scope for the policymakers to respond,” he says.
“Despite lingering concerns over the inflation outlook, the Monetary Policy Committee should be free to cut interest rates sharply.
“We see rates eventually falling to just 4% in 2009, well below most forecasters’ expectations.”
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