Forecasting gurus tip UK to return to recession

BRITAIN’S economy is already shrinking and is likely to be in recession as we enter 2012, the City’s most accurate forecasters have warned.

Economists at Standard Chartered fear the UK will suffer a sharp 1.3 per cent contraction next year as the country is hit by falling demand from its biggest trading partner, the eurozone, at the same time as households cope with declining real incomes and negative effects from the government’s spending squeeze.

The bank, which came top of 354 organisations for accuracy in economic forecasting over the past two years, has a far more pessimistic outlook than most other groups and its 1.3 per cent contraction contrasts with an estimate by the Office for Budget Responsibility (OBR) of 0.7 per cent growth next year.

Although Britain’s double dip won’t be as harsh as the storm about to hit the eurozone – Standard Chartered believes the 17-country bloc will see contraction of 1.5 per cent – it warns the troubles in Europe will have a “direct impact” on companies here. Just under half of the UK’s exports are to the eurozone, while the crisis across the Channel is also severely damaging confidence, the bank said.

Gerard Lyons, chief economist at Standard Chartered, believes next year will see an even greater shift of global economic might towards the East – particularly China.

“This points to the continuation of a two-speed world where a fragile West contrasts with a resilient East,” he said. “It will be a recovery made in the East and felt in the West. If ever one needed to illustrate the shift in the balance of power, this is it.”

He believes the UK will only record 0.7 per cent growth for this year – indicating a sharp dip in the fourth quarter.

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