Robert Watts and David Smith, Economics Editor
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Britain is fast heading into recession this winter despite Washington’s $700 billion deal to bail out America’s banks, say economic forecasters.
This weekend economists cut growth predictions, warning that Britain faces a long and deep recession with unemployment rising by up to 1m.
Gloom over the economic impact of the banking crisis has intensified, with economists warning that the credit crunch is hitting hard because many parts of the financial system have stopped functioning.
Royal Bank of Scotland (RBS), JP Morgan, Credit Suisse, Citigroup and Barclays Capital have all torn up their forecasts because of the rapid deterioration in the economic climate.
They now predict that the economy will shrink for at least two consecutive quarters, the technical definition of a recession. That means Britain will officially be in recession in January and that it will probably continue well into next year.
RBS predicts that the economy will have contracted by 0.3% during the third quarter and a further 0.3% in the final three months of this year. It also predicts that 700,000 people will lose their jobs between now and the end of next year, taking the number of those out of work up to 2.4m.
Ross Walker, an economist at the bank, said: “The real problem is not the consumer; it’s the corporate sector, which we now expect to slow much faster than we initially thought.”
Citigroup is even gloomier. It warns that consumer spending will see a bigger drop next year than in 1974, 1981 and 1991, the worst years of the last three big recessions. Unemployment, it says, will rise by 1m.
“Recent data and surveys make it clear that the overall economy is weakening rapidly and suggest that the recession is likely to be deep and severe,” said Michael Saunders, a Citigroup economist.
Robert Barrie, an economist with Credit Suisse, said the “downside risks” to the economy had increased significantly. “The last three recessions have lasted for the best part of two years rather than two quarters,” he said. “There are colleagues talking about stockpiling tinned food who think that it’s going to be a lot worse than that.”
The recession will play havoc with public finances. The Treasury still predicts that the economy will recover next year, growing by 2.25%-2.75%. Barclays Capital believes that GDP will shrink by 0.2%, while Citigroup is predicting a 0.6% contraction. Some analysts say that Alistair Darling, the chancellor, will be forced to down-grade his forecasts when the Treasury publishes its prebudget report at the end of this month. He will also acknowledge that public borrowing is set to rise sharply.
Gordon Brown, attending an emergency meeting of European leaders in Paris yesterday, proposed a £12 billion fund to help small businesses in Europe through the crisis.
“We have got to show how we can do more in Britain and across Europe to help small businesses, as well as households, through what is a difficult economic time but where I believe Britain can lead the way out of the difficulties,” he said.
Experts are sceptical about whether such a fund would have much impact. A survey this week of employment agencies will show the sharpest drop in recruitment for a decade, with demand for permanent and temporary staff down significantly and growth in staff salaries slowing to a halt.
The survey, by KPMG and the Recruitment & Employment Confederation, suggests that firms have been panicked by the crisis and are cutting back sharply.
Figures released tomorrow will reveal that new car sales have fallen by a fifth in the past month and are declining at the fastest rate since 1991. Sales fell from 417,000 in September 2007 to about 340,000, the fifth consecutive month of decline.
The abrupt slowdown has made Britain far less attractive to migrant labourers from eastern Europe. Employment agencies and the National Farmers’ Union (NFU) estimate that there has been a fall of up to 70% in the number of eastern Europeans prepared to work in Britain in recent months.
Philip Hudson, chief horticultural adviser to the NFU, said farms faced a “chronic shortage” of labour because of the reduction of foreign workers.
In a survey of 1,500 people by YouGov, the pollster, 24% said they were “seriously considering” leaving the country to avoid the economic slowdown. Men and workers living in London were most likely to be considering quitting Britain.
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Surely all we need is yet more immigration? Isn't that the establishment's answer to everything, including our economic benefit? And, if Britain only has the ability to feed 30 million people from our own farms, and we need to pay for imports for the rest, but we're broke - do we have a problem....?
Paul Williams, London, England
"Philip Hudson, chief horticultural adviser to the NFU, said farms faced a chronic shortage of labour because of the reduction of foreign workers."
Are the out-of-work bankers fron Lehmans not bright enough for this sort of work?
Dr Ray, hereford,
And a winter of discontent? Labour do not have the first clue about economics. Every Labour council has overspent. The big fat LABOUR government has overspent more than the taxation revenue streams provide sending the UK into debt. Personnel debt is £3.6 trillion pounds. BOOM & BUST
steve tea, manchester, cheshire
It is interesting that within one article you can talk of 'unemployment rising by 1 million' on the one hand, and 'a chronic shortage of labour' in the farming sector on the other. Is this not somewhat contradictory? Or is is just that we have become too fussy about the kind of work we will do?
Katie Church, Reading,
Having lived through the last couple of recessions,I saw this coming long ago.
I struggled to borrow £100k for a mortgage in 1991,even though both my wife & me earned over 20k each(1991 remember)
Isaw a taxi driver looking at a £360k gaff a couple of yrs ago.
Come onn get real!!!!
john, newcastle,
In the States and Australia, there was a program of helping the unemployed to get work by linking them up with job agencies in the private sector - instead of ordering people to 'show that they've been looking for work' by putting company names into a booklet in the UK. Labour's rubbish!
John, London,
The BBC and Radio 4's Farming Today daily news have consistently documented the paucity of willing indigenous labour to do any of the British farm jobs.
12 years of Labour government that can't extract labour from its own electorate. Perhaps a Leisure Party could achieve better.
Gerry, London,
Preceding this, we had the longest period of sustained growth yet the man running the economy didn't put a farthing aside. And he tells us that he's the man to get us out of this mire........get real.
Paddy H, Edinburgh,
2.4million unemployed but farmers can't get staff?
Says it all really.
Eric Downer, Honiton, uk
Retail recession is a self fullfilling prophesy. We read in the media that times are getting tougher and a recesion is on the way so we spend less. The stores report a fal in sales that the media trump as proof so we spend less. The media report......and so it continues
Andy P, Swindon,
The slowdown is gaining momentum.
This will be the biggest recession the UK has ever seen.
Alan Smith, London, UK
No, Andrew Piercey, you are not alone - I have been complaining about the BoE's obsession with inflation for over 12 months.
We have lived with 15% inflation and more ! 7% would be no great shakes.
Several million unemployed and hundreds of thousands losing their homes WOULD be, however
Trevor, Ipswich, UK
Inflation is likely to plunge, but BoE have their hands tied by not being able to reduce interest rates because of the parameters they have been given by the government. So, in six months time, we'll all have the opposite problem - probably deflation, but a deep recession.
A ridiculous situation.
Andy, Colchester, Essex
We need tax cuts and interest rate cuts this year. Am I the only one stunned by the BoE continuing to witter about inflation and the PM continuing to promise extra government spending as though nothing had happened? No Gordon! Tells us how you can deliver the same services for less money!
Andrew Piercy, London, UK
Crops still need to be harvested and the population still needs to be fed. The consumer 'slowdown' has no bearing on this. What makes Britain less attractive to eastern European migrants is the low value of Sterling. As previous posters have said, there is enough indigenous labour available.
Paul, Coventry,
There is destruction of wealth occurring now on a massive scale in the UK.
Any company chairman or CEO who presided over such destruction in his/her own company would be required by the shareholders to resign.
Why are Brown and Darling still in office?
MarkS, Leeds,
Let see if Mr Brown can borrow us out of this one!
Mark, Leeds,
A recession you say? On the way you say? How comes I haven't heard of this before!?
Tony, Islington, London, UK
It's not just the economic slowdown that makes people want to leave the country, it's having to endure two more years of Brown and his incompetent bunch.
Albert Hall, gloucester,
i like the way some people are expected to jump ship, we'll stay here and work it out with hard graft
"pledge my grievance to the flag, because you dont give blood and take it back again" -eddie vedder
ricki michael, truro, england
Tony your comment unbelievable it isnt good enough that lazy people are claiming benifits causing the public to have to fork out more you now want the public to pay more when its broke to people i say no let them take the jobs left by the imigrants let them pick veg on farms learn to work for once
Jean, Richmond, UK
The Govt tried to introduce work for the dole in Australia and the civil rights people had a huge whinge. Its demeaning to make the unemployed work for their money apparentely. They might learn skills and get into the work habit and then where would we be.
Emma, Canberra, Australia
RBS say '2.4m unemployed', NFU say 'chronic shortage of labour'. Hmm, there's a clue there. Perhaps people will need to think about doing jobs which were previously only considered suitable for migrant workers.
Chris, Perth WA, Australia
Now that unemployment is set to rise by as much as one million, it is now time for government to stop merely being content with trying to manage welfare, and instead look at introducing waged public works programmes, particularly for the young and the fathers of young families.
Tony Makara, Manchester,