Economists cast doubt on early recovery from slump

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Instead of a revival starting in the second half of the year, as forecast by the Treasury, most think Britain will remain in a slump for an extra year.

House prices will continue to slide throughout 2009, they said, and unemployment is likely to hit three million before the recession ends.

The bleak predictions are in a survey of 67 economists by the Financial Times. It found concerns that conditions were the worst since the early Eighties and the Government lacked a credible policy to restore the public finances to health.

There was more bad news today as credit rating firm Experian predicted 1,600 retailers, mainly small firms, were in danger of failing this year.

If correct, the forecasts suggest Gordon Brown will go into the next general election with the economy still in a trough. Mr Brown used his New Year message to admit that the year ahead "won't be easy" and to appeal to the public to show wartime spirit.

Among experts questioned in the survey was Sir Howard Davies, director of the London School of Economics. He said: "I do not expect to see any significant economic recovery in 2009. I expect the British economy to bump along the bottom, at best."

Alan Budd, former chief economic adviser to the Treasury, warned of a significant risk that "industrial and commercial firms ... will be forced to sack people and cut investment drastically in an attempt to restore liquidity". Oliver Marc Hartwich, of The Centre for Independent Studies, added: "The recession will be deeper and longer than forecast in the pre-Budget report. I would not expect the recovery to begin before 2010." Seven of the analysts polled were formerly on the Bank of England's monetary policy committee.

The majority of the 67 said it was vital to step up efforts to limit the damage to jobs and the misery of recession. But some warned the Government's decision to stimulate spending by cutting VAT and letting borrowing soar would backfire.

Charles Goodhart, former chief economist of the Bank of England, said: "By 2012 we will be wishing that we had done it differently ... fiscal profligacy will soon come to be rued."