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Buy, buy 2008: next year we’re going for broke
Hugo Duncan and Jonathan Prynn24 Dec 2008
Britain will plunge into the deepest downturn since 1947 next year, economists warned today.
The gross domestic product is now expected to fall by 2.5 per cent, worse than any time since the austere post-war era.
There are also predictions that property prices will drop for two more years to 35 per cent below their peak — negative equity for millions but a golden opportunity for first-time buyers when combined with low interest rates.
But the economic slump is good for shoppers as retailers are being forced to slash prices, with the West End enjoying record figures.
The latest verdict from the City on the depth of the downturn came from Jonathan Loynes, chief European economist at Capital Economics. He said a fall of 2.5 per cent in GDP next year would be as big a contraction in a single year as the entire course of the last recession in the early Nineties.
The pound fell today as investors speculated that the Bank of England will cut interest rates again next month to shore up the economy. Sterling later recovered to stand at 1.059 euros, up 0.1 of a cent. Official figures today showed the economy shrank 0.6 per cent in the third quarter of this year — a bigger fall than the 0.5 per cent originally thought. This revision fuelled speculation that the Treasury will have to downgrade the economic forecasts it made one month ago.
Gordon Brown has privately hinted that government forecasts of a swift recovery in the second half of next year may prove optimistic, largely due to the growing realisation that the banking crisis has been worse than predicted.
Ministers are also preparing for major job losses after Christmas with unemployment set to rise from 1.86 million to three million. Despite the massive turnout of shoppers over the past few days, more retail chains are expected to follow the fate of Woolworths.
Government sources believe that Alistair Darling will revise his figures in the spring Budget to show that the downturn has been grimmer than he suggested in the pre-Budget report last month.
The Chancellor admitted the UK economy will shrink next year, forecasting contraction in gross domestic product of 0.75 per cent to 1.25 per cent. The actual figure now looks set to be even worse. Matthew Sharratt, economist at Bank of America, said: “It really does paint an exceptionally gloomy picture about the speed with which the UK economy has lapsed into recession.”
Output in the manufacturing sector fell 1.6 per cent between July and September while the services sector, which makes up four fifths of the UK economy, shrank by 0.5 per cent.
Howard Archer, chief UK economist at Global Insight, said: “While the GDP data still do not show the UK technically into recession yet, as defined by two successive declines in quarter-on-quarter GDP, we are entering into it big time in the fourth quarter.”
Reader views (25)
Dave Davies
the Labour Government did not deregulate the city. the ideology that has caused this is conservative
- David, London, 23/12/2008 18:59
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What people fail to remember is that each time Labour
have come to govern they have cocked the economy up.
1.Wilson when he devalued the pound in the late sixties.
2.Callaghan governed during the Winter of Discontent.
3.Brown main principle of allowing too much credit.
What we need is a good, honest and sensible government who know what they are doing.
- Malcolm May, Windsor, Berks, 23/12/2008 18:57
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I am so depressed I have bought a villa in Turkey rather than earn pennies on my meagre savings.
Better to sit around the communal pool sipping Turkish plonk at £2 a litre than freezing in our house in the UK.
Taxed to penury ruled by the most incompetent Government in my life time I cannot wait to depart in January to warmer climes.
- Johnc, London UK, 23/12/2008 18:46
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Katie is right - I'm sick of living in the problem and not the answer. Negativity sells papers and bought by the same people who bored us to tears telling us how much money they had made in property.
- David Parker, LONDON, 23/12/2008 18:42
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Katie, yes other countries do have more negative media than the UK. In Germany for instance some newspapers derided their politicians in favour of Gordon Brown. In Greece there are now riots about the economy.
- Charles Turner, Kingston upn thames, UK, 23/12/2008 18:11
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There's one thing certain about predictions: that's all they are. A fall of 2.5% GDP? Hmmm... it's IMPOSSIBLE to predict GDP with ANY accuracy. So may variables can effect it. One being consumer psychology. And if they are wrong by a percentage point, they can always say they were nearly right. So my prediction is a fall of 1.5% if it's 2%, then I am just as good as capital economics.
- James, London, 23/12/2008 17:50
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Well said Katie from London.
I have stopped watching the news all together, it is a constant stream of doom and gloom.
We know and understand that we are in a recession so why report the fact on the TV, internet and in the newspapers everyday?
The funny thing is people are losing their jobs and the government are saying go out and spend spend spend, the sales are starting early.
Don't be fooled by the 50% off in these stores, they're only going to reduce the rubbish.
Woolworths shouldn't have bothered, they reduced all their rubbish 10-20% instead of the advertised 50%.
- Hiedi, London, 23/12/2008 17:44
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I really am bored to tears of this depressing negative reporting. Yes we all know we are going into a recession, what can we do about it - Nothing! So why not report on something else and bring some festive cheer to the country.
No where else in the world has such a negative media as the UK, keep telling people something for long enough and they will believe it, so why not try a bit of positive mental attitude, instead of negative depressing boring stories, we have all heard a million times.
- Katie, London, UK, 23/12/2008 16:51
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For years, the tame media has written about the careful financial stewardship of Gordon Brown. To some of us, this was a bright shining lie, obvious even then, because whatever good was done by the right hand, was being undone with his huge increase in public sector payroll headcount by the left. Brown never was a financial wizard and his legacy will be devastating for millions.
- Mark Cleminson, Richmond BC, 23/12/2008 16:40
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This should thankfully keep labour out of power for a generation - again, so that the damage they caused can be repaired - again.
- Dave Davies, Basingstoke, 23/12/2008 16:35
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Lets just say mid to late 2010 before any improvement. Early 2009 recovery...Brown really is a fool and so is his chancellor.
- Fly, london
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Sorry to disagree "Fly" on your recovery prediction, we have reached "The Limits of Growth" a tad earlier than predicted, things will not return to what the pundits call "The Norm" for many, many years, if ever!
As to Gormless Broon and Cohorts, I must agree with you!
GERONIMO
- Geronimo, LONDON MIDDLESEX, 23/12/2008 16:32
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This is the calm before the storm. The worst predictions for Germany are a decline of 3 or 4 percent. If that is the worst for Germany with no housing boom then what is the worst for Britain. We had the largest change of population in our history. We will reap the rewards of this folly.I can only see severe unrest as many cities descend in a spiral of decline.
- John Lamb, dagenham, 23/12/2008 16:32
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The only people who didn't see that Darlings prediction in his pre-budget statement of an upturn by mid-2009 wastotally unreal was Darling himself and Gordon Brown. Even worse is the thought that they DID know, and just lied. My money's on the latter.
- Malcolm, London
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So is mine Malcom!
GERONIMO
- Geronimo, LONDON MIDDLESEX, 23/12/2008 16:26
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When will the cause of all of this be removed from office?
Please do not forget we are spending 1.5 million a day in Iraq whilst spineless Brown is allowed to destroy our own country as well as another!
Brown out NOW.
- Jeremy Pearce, London, UK, 23/12/2008 16:23
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Brown and Darling? More like Laurel and Hardy
- Dan, Manchester, 23/12/2008 16:20
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I have begun to wonder whether there might be a concerted Tory compaign to trash Brown on these comment pages. I am no greater supporter of Brown and would not vote Labour at the next Election, but I do think that his approach of trying to stimulate aggregate demand on an international level is basically right. What have the Tories offered? If we all followed the German lead we would certainly be heading for a very prolonged depression. Think what that lead to last time around.
- Alan, London, 23/12/2008 16:17
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labour - voted in by empty minds and out by empty pockets! Guess the pockets are well and truly empty.....
- Gary, amersham, 23/12/2008 16:09
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At least Brown has found the key to removing the boom/bust oscillations, as it'll be bust from now on. At least the train companies can relax because they can abuse their monopoly to hike fares by double digits with Government (Geoff 'Buff' Hoon) support
- John Bloomfield, Twickenham, 23/12/2008 15:44
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Crash Gordon and Derling are really failing the Bitish working public.
- Jacqueline, Hampstead, London, 23/12/2008 15:33
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I really cannot see what the economists are getting their knickers in a twist for. This country has been living on credit for so long now that people have forgotten the reality of life. Don't spend more than you earn, simple fact. The way things are being phrased it is the worst since 1940, 1980, 2003.............etc., but the majority of people are still way better off than they were in the sixties and seventies. In those decades very few people aspired to owning a house and very few even owned a car, nowadays most people can afford to eat well and quite frankly have simply been over indulging in luxurious commodities. We are no longer a manufacturing economy but rely on the service industry, naturally we are going to the wall.
- Dennis, Taplow. U.K., 23/12/2008 15:22
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presumably train fares will go up by at least 7% come January though?
- Emma, Chislehurst, Kent, 23/12/2008 15:19
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Regrettably it does not appear Gordon Brown has ever understood the art of balancing income and expenditure as each of us have to do every day. Despite huge tax increases resulting in a for this country unprecedent large tax-revenue for the country he has during his 10 years as Chancellor managed to increase spending even more than his income - and when he chooses a new Chancellor it appears to be on the basis of finding someone who shall not outshine him.
- Ike, London, 23/12/2008 15:17
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Strange that all international economic agencies already predicted last year that Britain was in the worst situation of countries, where Crash Gordon now has to admit his defeat.
- Jacqueline, Hampstead, London, 23/12/2008 12:17
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No surprises there then. The only people who didn't see that Darlings prediction in his pre-budget statement of an upturn by mid-2009 wastotally unreal was Darling himself and Gordon Brown. Even worse is the thought that they DID know, and just lied. My money's on the latter.
- Malcolm, London, 23/12/2008 10:41
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Lets just say mid to late 2010 before any improvement. Early 2009 recovery...Brown really is a fool and so is his chancellor.
- Fly, london, 23/12/2008 10:38
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