Britain ‘already in double dip recession’

EUROPE’S failure to solve its sovereign debt crisis has “paralysed” Britain’s recovery, with the likelihood that the UK is already in a technical recession, an economic report will tomorrow warn.

The turmoil in the Eurozone saw investment in the UK economy fall by about 2.6 per cent last year as companies lacked the confidence to push ahead with growth plans, according to the latest analysis from the Ernst & Young Item Club. Investment decisions are likely to remain on hold for much of this year and the economy will struggle to return to positive GDP growth until 2013.

The Item Club believes that when GDP figures for the fourth quarter of 2011 and the first quarter of this year are eventually published, they will show Britain entered a double dip recession before Christmas.

Although the forecasting group doesn’t believe the downturn will be as severe as in 2009, it is predicting growth of just 0.2 per cent by the end of 2012 while unemployment will approach three million by the start of next year, up from the current level of 2.64m – itself a 17-year high.

However, the Item Club’s 0.2 per cent GDP forecast for this year is optimistic compared to expectations from other economists and Standard Chartered, which tops the City for accuracy, has pencilled in a 1.3 per cent contraction.

Peter Spencer, chief economic adviser to the Item Club, said: “Figures for the last quarter of 2011 and the first quarter of this year are likely to show that we are back in recession and we are going to have to wait until this summer before there are any signs of improvement. But it’s not going to be a repeat of 2009; we are not going to see a serious double dip.

“This time around, UK plcs have strong balance sheets and have built up large cash stockpiles, which will provide a useful insurance policy if the situation deteriorates further. However, with business confidence faltering, investment and recruitment are likely to remain on hold until stability returns.”