UK Economy May Contracy at 3.3%

123jump.com Staff
16 Feb, 2009
New York City

UK stocks dropped after a gloomy economic forecast from the largest industry group. The latest estimate suggests that the economy can drop as much as 4.5% in the next six quarters and the growth may resume the earliest and in 2011. For the current the economy is forecasted ot shrink 3.3%.

[R]1:00PM New York, 6:00PM London - U.K. economy forecasted to shrink 3.3% in 2009. Bank of England may take further action to forestall economic slump.[/R]

London stocks fell after the Confederation of British Industries said the economy will contract 3.3% this year.

In London trading FTSE 100 index fell 1.3% or 54.84 to 4,134.75.

Of the FTSE 100 index stocks, 15 rose, 84 declined, and 3 were unchanged. Shire Plc led advancers in the index shares with a rise of 1.6% followed by Capita Group increasing 1.6%.

U.K Economy Forecasted to Contract

Confederation of British Industries reported today that the UK recession that began in the third quarter of 2008 will deepen in the fourth quarter of 2008 and last the entire 2009.

The economy is expected to shrink 3.3% and unemployment is estimated to rise to 2.9 million by the end of the year on worsening economic conditions and tougher credit environment.

However after six quarters of negative growth, the economy is forecasted to stabilize early next year with the recovery building throughout 2010.

The CBI says the economy will shrink by 4.5% over the six quarters ending in 2009 and in 2010 economic growth is expected to be flat.

In addition, the consumer price inflation will drop 0.1% in the third quarter of 2009 and will remain under the central bank''s target of 2%, while household consumption is projected to drop 2.7% in 2009.

The survey estimates earnings growth to ease to 1.1% and wages are expected to be flat. Earnings are expected to rise 2.5% by the end of 2010.

According to the report, business investment is expected to shrink by 9.2% in 2009 and further 1.7% in 2010. Net borrowing is expected to rise to £149 billion in 2010 and £168 billion in 2011, 10.6% and 11.8% of GDP respectively.

Director-general of the CBI, Richard Lambert, said, ""The outlook remains extremely uncertain so forecasting remains especially difficult.

Ultimately the severity of this recession will depend on the speedy implementation of the Government''s measures to unblock the credit markets and the success of various global stimuli packages in repairing business and consumer confidence.

However, during the second half of the year the impact of interest rate cuts, falling inflation, the relative weakness of Sterling, plus the fiscal boost, should start to have a stabilising effect.""

Bank of England May take Further Action

Times Online reported today that Bank of England deputy governor Charles Bean said today the Monetary Policy Committee will need to take further action lower inflation to its target range of 2% as it is projected to run below its target in the medium term.

Bean said the central bank might adopt ""quantitative easing"" to boost the amount of money that is in circulation.

The Bank of England recently cut its interest rates to 1%.

Gainers & Losers

Shire Plc led advancers in the FTSE 100 index shares with a rise of 1.6% followed by increases in Capita Group of 1.6%, in Autonomy Corp. of 1.4%, in Sage Group of 1.4%, and Associated British Foods of 1.4%.

Legal & General Group led decliners in the FTSE 100 index shares with a drop of 10.5% followed by losses in Lloyds Banking of 8.1%, in Prudential Plc of 8%, in Aviva Plc of 7%, and Royal Bank of Scotland of 6.4%.

Commodity related stocks fell. Rio shed 4%, Vedanta slipped 2.6% and Antofagasta plunged 3%