Darling's recovery just a "dead cat bounce"
Darling's recovery forecasts look down
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Monday, 27, Apr 2009 11:13
A UK recovery by the end of the year, as predicted in the Budget by Alistair Darling, could well be a 'dead cat bounce'.
Analysis from the Centre for Economics and Business Research (CEBR) points to a contraction in GDP of 4.5 per cent over 2009 - compared to Alistair Darling's forecast of a 3.5 per cent contraction for this year, with "growth to resume towards the end of the year" made in the Budget.
The International Monetary Fund sees the UK economy contracting by 4.1 per cent this year.
Ben Read at CEBR explained growth may come at the end of the year - but for very different reasons cited by the chancellor.
"We have been keeping an eye on it, and by the end of the year firms will have to start re-stocking and there is a small possibility of growth because of that," he said.
During a recession firms tend to cut back on investments and clear their inventories of stock, and at some point they will have to start buying again, not because of greater demand but due to emptying stock rooms.
"One potential impact of this is that there may be a 'dead cat bounce' in the fourth quarter of this year, as the inventory cycle turns -one area that the Chancellor may have got right in his forecasts on Wednesday, but almost certainly for the wrong reasons," Mr Read stated.
He also described the Treasury's growth forecasts as "fantasy" - with expectations of 3.5 per cent growth after 2011 - with trend growth of that level only according in ten out of the last 30 years and it being unlikely coming out of a recession.
CEBR is now forecasting "an incredibly sluggish recovery" as higher taxes, problems in the financial sector, a maudlin property market and higher consumer savings firmly put the brakes on growth.
With a deeper recession and slower growth out of the downturn, the Treasury's forecast fro £175 billion borrowing could rise to £190 billion.
As a result, the forecasters expect unemployment to rise by 3.6 per cent in 2009 and a further 1.9 per cent in 2010 - with employment only starting to rise again in 2012 - by which time employment could have dropped by 1.8 million.
Mr Read explained growth of between one and two per cent would not be enough for levels of employment to grow - but growth in unemployment would hold back.