UK headed for recession

Yuan Phoon

December 15, 2011

It predicted that GDP growth would be -0.4% in 2012 and only 0.5% in 2013.

L&G cited the continuing eurozone debt crisis to be the lead downward driver as the EU remained the UK’s largest trading partner.

It however expected UK inflation to fall from current levels due to the effects of the VAT increase and the increase in utility costs dropping out.

Inflation however was not expected to drop all the way back to the Bank of England’s 2% target level until 2013.

Given that inflationary concerns were diminishing and growth was weakening, L&G said it saw the potential for further quantitative easing ahead.

Tim Drayson, economist at L&G, said he believed that the Office for Budget Responsibility had remained too optimistic despite its recent GDP downgrades for 2012.

He said: “Given planned austerity measures, we feel that the OBR’s forecasts would be achievable only if the private sector grows at near record levels. We see no basis for that.

“Should growth concerns worsen we do expect the Bank of England to do more quantitative easing and also for the US Fed to follow.”

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