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Unemployment will soar above 3 million as Britain's manufacturers, retailers and service industries feel the full effects of the downturn, according to the British Chambers of Commerce, which said economic output is set to fall this year by more than in the last recession of the 1990s.
The jobless count will rise to 3.1 million, or 10% of the workforce, the business group predicted. It said the UK economy could shrink by as much as 2.9%, leaving the country to face the "distinct risk" of deflation this year. As a result, the government's depleted finances will remain in a parlous state for many years.
The BCC's gloomy forecast was matched by analysis from Experian that predicted that up to 1,400 retailers would be forced out of business over the coming year. The retail consultancy said there was no disguising that 2008 was "an annus horribilis" for the retail sector and there was little prospect of improvement in 2009.
A last-minute dash to the shops at Christmas failed to lift footfall figures to last year's level, Experian said. Shopper numbers were 3.1% lower in December than they had been in the same month of 2007, despite heavy discounting that in many cases wiped out profit margins.
Experian said there had been a 21% year-on-year jump in the number of retail insolvencies, with high-profile casualties such as Woolworths, Adams and Zavvi all calling in the administrators. It predicted a further 440 retail businesses would fail in the first four months of 2009, with a total of 1,400 going under in the year as a whole.
Economists lined up to support the view that 2009 would be one of the worst years for the economy and could trigger a longer-than-predicted slump in national output.
Howard Archer, of Global Insight, said the economy would contract by 2.7% as the effects of the banking crisis gripped the real economy.
"Consumer spending is being hammered by accelerating unemployment, muted income growth, high utility bills and food prices, very tight lending practices, heightened debt levels, a depressed housing market and substantially lower equity prices," he said. "Additionally, heightened concerns about the economic outlook are leading consumers to tighten their belts.
"The Bank of England's cutting of interest rates by a total of 300 basis points between October and December, and undoubtedly more reductions to come, will obviously help consumers, as will some of the measures contained in the government's £20bn stimulative fiscal package announced in November's pre-budget report. Nevertheless, consumers will face serious pressures for an extended period, and will be particularly hit by sharply *rising unemployment in 2009. Consequently, we expect consumer spending to contract by around 2% in real terms in 2009."
Archer predicted house prices would fall another 15%, while Capital Economics said it could be as much as 20% as the cost of the average home headed for a 50% fall from its peak in the summer of 2007.
The BCC said it believed there was a risk of deflation in the second half of this year, while government borrowing would increase to £130bn.
David Frost, BCC director general, said: "I have worked through three recessions now and 2009 looks like it will be one of the toughest years I have ever seen for the UK.
"Some of the strain can be avoided, but only if the government can address the two key problems of confidence and cash flow. We must avoid losing viable companies during this downturn."
David Kern, chief economist at the BCC, added that the UK's prospects had worsened significantly since the group's last forecast at the end of 2008. The BCC was now predicting bigger declines in economic output, higher unemployment and larger government borrowing than envisaged in November.
Unpredictable 2008
Last year most City analysts were wrong on house price inflation, wrong on unemployment, wrong on interest rates and wrong on the severity and depth of the recession in 2008.
To be fair, most of them were near the mark until the Lehman Brothers collapsed. As the governor of the Bank of England, Mervyn King, said, Lehmans changed everything. King, who was also wrong-footed by events, was predicting until the summer that the UK economy was robust and all we needed to worry about was inflation.
In January last year the CBI believed the growth in national income for 2008 would be 2%. Today, GDP growth looks more like being 0.8%.
The Royal Institution of Chartered Surveyors suggested that 2008 would be a game of two halves for the property market. It said house prices will would end the year broadly unchanged as first-time buyers buoyed the market. Instead, we had the sharpest decline in house prices since the 1970s.
Most economists opted for predicted that base rates at the end of the year of would be 4% to 4.5%. Roger Bootle, economic adviser to Deloitte & Touche, picked 4%, while David Brown at the soon-to-go-bust Bear Stearns, said: "UK rates should be at 4.5% by the end of 2008." Now they stand at 2% and with will fall further, to fall according to many experts.
- Unemployment and employment data
- Manufacturing sector
- Retail industry
- Economic growth (GDP)
- Consumer spending
- House prices
- Recession
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