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1/31/08

CEP - UK Risks Recession Within 'Two Years'; the EU Britains largest export market will remain strong, says Deloitte Report

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UK Risks Recession Within 'Two Years'; the EU Britains largest export market will remain strong, says Deloitte Report

The UK economy could go into a recession within two years according to research conducted by Global Financial and tax advising firm Deloitte. In its economic review, Deloitte said the UK’s housing market would be at the heart of the downturn, with prices falling by about 5% over 2008, followed by 8% in 2009 with the credit squeeze compounding woes as borrowing becomes increasingly difficult. Deloitte expects U.S. growth to slow to zero over the first half of this year. The European economy, the UK's largest export market, will remain relatively strong, but not strong enough to offset a US slowdown. Exports to India and China are also unlikely to alter the UK’s position, as the two countries buy less than 5% of the country’s exports. Deloitte forecasts the UK economy to grow by 2% over 2008 followed by a slightly smaller margin the following year. However, Roger Bootle, economic adviser at Deloitte, thinks moderately benign inflation could help prevent a recession as it will give the Bank of England’s Monetary Policy Committee enough room to cut interest rates. “We forecast that the UK base rate will fall to 4.00% in 2009 from 5.50% at present,” he said. The UK economy could go into a recession within two years according to research conducted by Global Financial and tax advising firm Deloitte. In its economic review, Deloitte said the UK’s housing market would be at the heart of the downturn, with prices falling by about 5% over 2008, followed by 8% in 2009 with the credit squeeze compounding woes as borrowing becomes increasingly difficult. Deloitte expects U.S. growth to slow to zero over the first half of this year. The European economy, the UK's largest export market, will remain relatively strong, but not strong enough to offset a US slowdown. Exports to India and China are also unlikely to alter the UK’s position, as the two countries buy less than 5% of the country’s exports. Deloitte forecasts the UK economy to grow by 2% over 2008 followed by a slightly smaller margin the following year. However, Roger Bootle, economic adviser at Deloitte, thinks moderately benign inflation could help prevent a recession as it will give the Bank of England’s Monetary Policy Committee enough room to cut interest rates. “We forecast that the UK base rate will fall to 4.00% in 2009 from 5.50% at present,” he said.

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