The UK's |Economy to contract by 3.8%

I paraphrased a Reuters Report on the British economy released this morning (18 June).

The British Chambers of Commerce indicated that the British economy will contract by 3.8 per cent this year and can see a muted recovery in 2010.

This business group said the worst of the recession was probably over and output would likely turn positive in the fourth quarter of 2009.

However, it said recovery was not guaranteed and there was a risk the economy could deteriorate again if stimulus from record low interest rates and expansionary fiscal policy were withdrawn too early.

"A temporary rebound driven primarily by the stock cycle will not produce a sustainable recovery unless consumer spending, investment and exports start to improve," said BCC chief economist David Kern.

The BCC's forecast of a 3.8 per cent contraction this year and 0.6 per cent growth next year brings it more into line with consensus. Its previous forecasts in March — for 2.8 per cent contraction this year and growth of 0.8 per cent in 2010 — were well above consensus.

The BCC is the latest business group to warn that the green shoots of recovery may be fragile. The Confederation of British Industry took a similar line earlier this week.

Britain's economy shrank by 1.9 per cent in the first three months of this year, its sharpest contraction since 1979, but forward-looking indicators suggest the economy is stabilising and may soon return to growth.

The BCC said it expected the cumulative decline in GDP in the current recession to come in at 4.9 per cent. That would be much worse than the 2.5 per cent decline recorded in the recession of 1992-1993 but less severe than the recession of the early 1980s.

I am watching for more concrete signs of recovery.