2008: Toughest year since dotcom bubble

Wednesday, 02 January 2008 12:00

Britain faces the toughest economic conditions since the dotcom bubble burst in 2008.

An annual poll by the Financial Times (FT) of 55 leading economists reveals confidence in the economy is lower than a year ago, with 90 per cent describing public finances as being in a poor state, while two-thirds expected house prices to fall in the coming year.

The poll also points to the economic slowdown fuelled by the credit crunch having a greater effect on the economy than the dotcom crisis of 2001/02.

The FT survey also predicts greater pressures on households as prices rise further - but the Bank of England (BoE) is expected to show a blind eye to these inflationary pressures in the short-term preferring to cut interest rates to boost the economy.

The dreary outlook is supported by research by credit insurance firm Euler Hermes which predicts 13,492 firms will go bust next year, a rise of 8.3 per cent on 2007.

Meanwhile Howard Archer, senior economist at Global Insight, predicts a fall in UK GDP from 3.1 per cent in 2007 to just 1.8 per cent in 2008, coupled to a three per cent fall in house prices.

"We expect the BoE to cut interest rates by a further 25 basis points in each of the first (to 5.25 per cent) second (to five per cent) and third (to 4.75 per cent) quarters of 2008," said Mr Archer.

"Furthermore, if the downside risks to the growth forecast materialize, interest rates could very well go down to 4.50 per cent or even lower."

However, not all economists are so gloomy.

Ross Walker at the Royal Bank of Scotland predicts a slowdown but has dismissed suggestions a recession is ahead.

He told BBC One's Breakfast programme today: "It is certainly going to be a tougher year. The mood is much more cautious both among consumers and business.

"Growth we think we will be coming in below its long-run average, so it will feel like a slowdown."

Mr Walker concluded: "At this stage a recession such as we saw in the early 1990s doesn't look to be on the cards."

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