Wed, Dec 28, 2011 - Page 10 News List

Think tank warns of potential return to recession for Britain


The ongoing crisis in the eurozone and sapped consumer confidence risk sending Britain into a new recession, a leading center-left think tank warned yesterday.

Britain faces a “bleak” start to next year, but any potential slowdown could be dampened by a fall in inflation, which would boost consumer spending power, the Institute for Public Policy Research said.

“As we enter 2012, it seems the word that best describes the outlook for the UK economy is ‘bleak,’” the think tank’s chief economist Tony Dolphin said.

“The eurozone crisis is unresolved and country after country is being forced to adopt extreme austerity measures that will result in large falls in output. As a result, the whole eurozone economy is believed to be back in a mild recession,” he said.

After coming to power in May last year, Britain’s coalition government announced cuts worth £81 billion (US$126.9 billion) over five years to slash a record public deficit it blames on the previous Labour government.

If the general mood of austerity deepened, it could affect the confidence to “such an extent that the economy drifts into recession,” Dolphin said.

He said the only way to drag the country out of a double-dip recession would be to loosen public purse strings to boost demand.

British Chancellor of the Exchequer George Osborne has consistently ruled out this policy change, citing Britain’s low borrowing costs as vindication of his plan.

“With no prospect of tax cuts or lower interest rates, it is not clear what in the short-term the catalyst for more spending by the private sector will be,” Dolphin said.

“In the short-term, economic policy has become a matter of hoping that something turns up — and that is why, for the UK economy, 2012 is unlikely to be a happy New Year,” he added.


Separately, Spain will slide back into recession early next year with the current quarter and the first next year both registering negative growth, new Spanish Economy Minister Luis de Guindos said on Monday.

De Guindos said he expects the economy — the eurozone’s fourth largest — to contract by between 0.2 percent and 0.3 percent on the previous quarter in the final three months of this year and again in the first quarter of next year. He said the outlook for next year was poor.

If the Spanish economy were to contract by between 0.2 percent and 0.3 percent for an entire year, it would shrink about 1 percent.

“Let nobody be fooled, the next two quarters are not going to be easy either in terms of growth or employment,” de Guindos said.

Spain began to emerge from a near two-year recession last year. It had two successive quarters of growth this year before posting zero growth in the third period.

De Guindos took office last week as part of the new conservative Popular Party government. Spanish Prime Minister Mariano Rajoy has pledged austerity cuts totaling 16.5 billion euros (US$21.6 billion) and promised labor reforms.

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