The UK economy is set to suffer two consecutive quarters of negative GDP growth plunging it deep into an official recession, a report predicts.
An economic outlook study, published today by the Organisation for Economic Cooperation and Development (OECD), suggests the UK economy will shrink at an annual rate of 0.3% in the third quarter, and by 0.4% in the fourth.
According to the OECD, the UK economy did not grow at all in the second quarter this year and has fallen significantly from strong GDP growth as recently as Q3 last year, after the credit crunch had already set in.
In addition, the organisation has revised its annual GDP growth projection down to 1.2% just two months after predicting growth of 1.8%.
The figure is less than the forecast 1.4%, suggested last month by the International Monetary Fund (IMF), and is less than half the official Treasury prediction of 2.5%, although the Treasury is set to reduce this number.
It is also worse than the ‘recession’ of 1975, when there was a fall in GDP of 0.6% according to the Office for National Statistics (ONS), but would not be as severe as the economic slumps of 1980, 1981 or 1991.
A working definition of a recession is when the UK economy experiences two successive quarters of what is known as ‘negative growth’, a scenario the OECD predicts.
“Financial market turmoil, housing market downturns and high commodity prices continue to bear down on global growth while at the same time evolving rapidly,” the report reads.
“The downturn in housing markets is still unfolding, with reduced credit supply likely adding to pressures.
“In Europe, downturns in prices and construction activity appear to be spreading beyond Denmark, Ireland, Spain and the United Kingdom, with sharply lower transaction volumes likely a precursor of downturns elsewhere.”
However it says its “limited experience” with some of the main drivers of projected GDP figures “make for a particularly unclear picture”. It says activity in the UK may remain broadly flat, hinting the economy may not end up as bad as its gloomy outlook suggests.
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