The British economy is heading for recession next year and unemployment could top 2 million by 2010, Ernst & Young said on Sunday.The Ernst & Young Item Club, which is expected to publish its summer forecast on Monday, said that the British economy will struggle to avoid a recession next year, with predicted GDP growth of only 1%.
Peter Spencer, Ernst & Young's chief economist, said, “Both on the high street and in the housing market, it will get a great deal worse before it gets better.”
“Our worry is that without the usual medication from the Bank of England, consumers will move from their current state of denial into a state of despair,” he said.
Unemployment will rise but not at the rate of previous downturns and falling immigration will lessen the impact of job losses, he added.
Ernst & Young's dismal forecast comes after Sir John Gieve, deputy governor of the Bank of England, warned that inflation is set to climb well over 4% this year. He also admitted that a recession looks likely.
The Treasury has been forced to admit it is working on plans to reform its fiscal rules on spending and debt as the government will break its own rule limiting net public-sector debt to 40% of national income.
“As we have consistently warned, both the consumer and the government have been living beyond their means for the last few years, overborrowing on credit. Households will be lucky to see real disposable income growth of 1% this year.” (Xinhua)