Deloitte and KPMG warn: UK economy headed for recession

by Editor 7/30/2008 3:19:00 PM
Leading UK consultancy Deloitte has released its quarterly economic review, in which it examines the effect of the lower pound exchange rate on the British industry. The report concludes that the UK economy may be headed into a recession similar in proportion to the one in the early 1990s.

Economic adviser Roger Bootle explains: “While the sharp fall in the UK exchange rate seen since last summer should eventually lead to a period of better balanced growth, like that enjoyed in the mid-1990s, it won’t prevent the credit crunch and a sharp retrenchment in corporate spending from sending the economy into recession."

Deloitte’s report shows that quarterly growth has fallen to 0.2 percent in the second quarter. The consultancy says that a "technical recession" of domestic GDP declining for two or more consecutive quarters is now more than likely to occur. The report states: “A full-blown slump like the early 1990s is not impossible if the labour market crumbles or interest rates end up rising rather than falling.”

Deloitte’s quarterly review goes on to say that the Bank of England will have to cut interest rates to 3.5 percent in 2009, but this will nevertheless not result in an early economic recovery.

At the same time, KPMG has warned that 53 percent of UK businesses are planning to cut jobs. The consulting firm's quarterly national business confidence survey also shows that 60 percent of them plan to cut overall costs during the recession.

“The clouds that were on the horizon in early spring are now right overhead, with businesses feeling the impact of this so-called ‘perfect storm’ of rising inflation, tightening credit conditions and plummeting consumer confidence," concludes Malcolm Edge, KPMG's head of markets. To find the latest consulting jobs at Deloitte or KPMG, please visit our job board.

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