Skip to main content

The economic forecast

In its autumn forecast, the Ernst and Young ITEM Club says that the UK is entering inevitable recession, with GDP forecast to shrink by 1% over 2009, followed by a slow recovery to just 1% growth over 2010. Even if recent government rescues have pulled us back from the brink, a lot of damage has been done and the availability of credit will improve only very slowly. Corporate profitability has been hit by rising commodity prices, and business confidence is at its lowest since the 1990s. Widespread reductions in investment and employment are now inevitable, maintaining the squeeze on household budgets. However, with lower commodity prices and interest rates, the ITEM Club says that the recession in the wider community should not be severe.

The projections are made, according to a commentator on the BBC this morning, by applying the same economic model as the Treasury uses. How realistic is the model? How well does it represent the special behaviour of the land market? That is key to the credence that can be given to this and competing forecasts.