26 Nov 2008

'Severe' recession ahead for UK

6:39 am on 26 November 2008

The Organisation for Economic Co-operation and Development predicts a "severe" economic downturn in Britain in 2009.

The agency, based on Paris, expects that economic output in Britain will fall by 1.1% next year.

Hungary, Iceland, Ireland, Spain and Turkey are identified as other countries most affected by the economic slowdown.

UK unemployment is predicted to rise significantly to over 8% by end of 2009 from 5.5% in 2008.

Economic growth in the 30 countries of the OECD is forecast to fall by 0.4%, before growing by 1.5% in 2010.

The US economy is forecast to decline by 0.9% in 2009 and Germany by 0.8%.

The OECD says the downturn is the "most severe since the early 1980s" and is likely to lead to a "sharp rise in unemployment" with growth not returning to trend before the second half of 2010.

World trade growth will also slow sharply, from 4.8% this year to 1.9% in 2009, which will hit many major developing countries.

However, it says the slowing economy and the effect of lower commodity prices, will bring about a sharp slowdown in inflation, leaving space for more cuts in interest rates.