European experts are warning Britain that its economy is a lot worse than the Brit government has admitted….What warning does this give to the USA?
Britain’s economic performance this year will be much worse than the government has predicted, the European Commission said today, with the economy due to contract by 2.8 per cent — the worst performance since 1946.
Unemployment will rise to 8.2 per cent with exports too weak to stop output plummeting, according to Brussels, but it is the forecast of such deep recession that is the most worrying. One of the biggest drops in the European Union, it compares to the Government’s own forecast of negative growth of between 0.75 per cent and 1.25 per cent.
Annual net borrowing will rise to 8.8 per cent of GDP this year, more than the 8 per cent forecast by Alastair Darling in November, while the gross national debt will rise from 44.1 per cent of GDP in 2007 to 72 per cent in 2010, the Commission predicted, largely due to the multi-billion pound bank bailouts.
Britain will be one of the hardest-hit of the 27 EU countries, but all are in for a tough year, with the overall EU economy due to contract by 1.8 per cent this year before recovering to 0.5 per cent growth in 2010.
Britain is forecast by Brussels to experience two quarters of negative inflation in the last half of this year, but this will not amount to an annual judgment of deflation in 2009, said Joaquin Almunia, the EU’s economic and monetary affairs commissioner.
“In annual terms in 2009, inflation [in Britain] according to our forecast is 0.1 per cent and next year 1.1 per cent,” said Mr Almunia this morning.
“The situation is more worrying in public finance because the UK had not consolidated public finances during the good times,” he added.
“According to our forecasts and also the British government forecasts, their situation in deficit and debt will deteriorate very rapidly.”
The European Commission report also suggested that Britain’s manufacturing base was now too small to take advantage of the weak pound. “Despite the sharp fall in the effective exchange rate over 2007-8, net external demand will provide only limited support to growth in 2009, given the weakening of growth in UK export markets. Output is likely to show only a modest recovery in 2010, with annual growth of one quarter of one per cent. Given the pronounced fall in output, the unemployment rate is likely to rise to around 8 per cent this year.”
It added that “the likelihood that economic activity in 2010 will be weaker than envisaged by the UK authorities also carries a risk that the fiscal tightening measures announced to 2010 will not be fully implemented, which would raise the deficit forecast in 2010-11 by up to three-quarters of a percentage point of GDP.”