UK - The UK economy faces a one in three chance of falling back into recession by 2012, Legal & General Investment Management (LGIM) has warned.
Using the same model which highlighted the possibility of the financial crisis at the start of 2008, LGIM economist James Carrick found a 33% probability of recession in 2012 because of the government's policy tightening plans.
Carrick said the model suggested a 10% chance that year-on-year economic growth would be negative in a year's time, rising to 33% by 2012. However, since the figures are calculated year-on-year, the UK economy may begin contracting as early as the second half of 2011, Carrick warned.
"The sharp cuts in public spending that the government made in the recent emergency budget represent the largest fiscal tightening since the Second World War," he added.
"Government figures suggest the gap left by these cuts will be filled by the biggest private sector boom ever - given how tight lending conditions remain, this is far too optimistic."
Carrick said the economy was not yet strong enough to have the "automatic stabilzers" of low taxes and high spending removed, and as a result the Bank of England would need to provide offsetting support to the economy.
"The BoE wants to ensure sterling does not rise further," Carrick added. "There's a danger that fiscal tightening makes the pound a more credible currency than the euro or US dollar, undermining the export recovery. Low interest rates should also boost the profitability of bank lending, helping to improve credit conditions."
Get the latest news direct to your inbox.
More from United Kingdom
Updating your subscription status
The best of our readers' ideas on how to structure defined ambition pensions
This paper is for those who are interested in keeping up to date with the latest pensions changes in more depth. Suitable for trustees, pensions specialists and in-house company pensions teams. It's an interactive document which means you can quickly jump to the information that interests you.
This survey looks at the experiences of 97 completed member option exercises, covering over 180,000 members. We also had input from four of the leading Independent Financial Adviser (IFA) firms who have shared their insight on the member experience based on the direct contact they have with members.
Circa £50,000pa plus bonus, benefits
GBP28000.00 - 32000.00 per annum
B&CE The Peoples Pension
Send to a friend