Top economist: UK will enter recession this year

The City economist I mentioned yesterday, Michael Saunders from Citibank, has today revised forecasts and believes the UK recession will start this year and expects growth of 0.3% next year with a feeble 0.6% in 2010. He says:

“Recession is not certain, but seems more likely than not. Our base case now has GDP falling in both Q3 and Q4 this year, although the general outlook of severe weakness is more important than the exact quarterly path of GDP…. “A hangover of high private debts, low household savings, elevated house prices, weak export performance, relatively high wage growth, and weak fiscal position… . now make the UK more vulnerable to the current severe shocks of (1) credit crunch and (2) powerful inflation pressures, from the global commodity price surge plus the weak pound. The inflation surge erodes real incomes – adding to the economy’s downside — and also is lifting inflation and inflation expectations, hence removing scope for lower interest rates to ease the credit crunch.Both