UK Economy: UK Economy 2010, UK Economic Forecast

June 29, 2010United Kingdomby EconomyWatch


Forecasting the UK economy in 2010 in the midst of such economic uncertainty and financial upheaval is, to put it mildly, a challenge.

Growth estimates have been coming down quicker the temperature in one of the coldest winters the UK has experienced in recent times.

Back in what now seems like the good old days of 2007, the hopes were for a ‘soft landing’ with slower growth of 4-6 quarters before the boom times resumed their natural course.

As the blood started flowing in the City, the goalposts for the start of recovery started to move. It was hoped that by the middle of 2009 economic recovery would resume.

As the economic data became bleaker by the day at the start of 2009, the prospects for 2010 were similarly downgraded.

The consensus for 2010 has now shifted to flat to negative growth, with the Economist forecasting 1.1 per cent drop in GDP.

The Bank of England Interest Rate, Inflation and the three month Treasury rate are expected to stay low at under 1 per cent, under 1 per cent and 1.3 per cent respectively.

The budget balance, however, is expected to grow dangerously to -13 per cent of GDP, which would take UK national public debt above 70 per cent of GDP, a dangerous level far about the Sustainable Investment Rate target of under 40 per cent, and bringing with it risks of both a sovereign debt downgrade (which would cause borrowing rates for the UK Treasury to go up and confidence to drop), and which will crowd out private businesses already facing grave troubles trying to raise capital for investment.

Forecasters are further projecting a rise in unemployment to 2.5m – 3m workers, or 8-10 per cent of the labour force, and stabilisation of housing market only some time in the second half of the year.

There is clearly a chance for a more protracted, depression-style downturn, and increasing numbers of forecasts are citing this as a growing risk.

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