BRITAIN'S struggling economy has slumped into recession, a leading City investment bank claimed today. ING Financial Markets said Government figures next Friday will reveal that gross domestic product - a measure of overall economic activity - fell by 0.3% during the fourth quarter of last year. And it predicts GDP will drop again, by 0.2%, during the current quarter. That would mean output had contracted for two consecutive quarters - the widely accepted definition of recession. Mark Cliffe, chief UK economist at ING, blamed the fourth-quarter decline on slowing High Street spending, a ballooning trade deficit and sluggish business investment. He said: 'It looks like the UK's unbalanced economy may finally have fallen over. The recent softness in retail sales, coupled with a rapid deterioration in the UK's net exports and ongoing weakness in capital expenditure, point to a quarter-on-quarter fall in GDP of 0.3%.'
Cliffe claimed fears of war with Iraq would continue to depress High Street spending. He said: 'Even allowing for a modest acceleration in consumer spending from the fourth quarter's depressed levels, this may be offset by a larger drop in corporate investment and inventories. We look for a further decline of 0.2% in the first quarter.'
For 2003 as a whole, ING predicts growth will be no better than last year's 1.6%. It says the Bank of England will be forced to lower interest rates from 4% to 3.5% in March to give the economy a boost. The ING prognosis is much grimmer than the average City forecast. The consensus estimate is that the economy will expand by 2.3% this year, with modest growth in each quarter. Chancellor Gordon Brown has pencilled in growth of between 2.5% to 3%. ING's scenario would blow a huge hole in the Government's public finances.
But rival economists questioned ING's forecasts. Philip Shaw, at Investec, said: 'It's probably right to say manufacturing is in recession, but it's too strong to say this applies to the whole economy. The services sector, while slowing, is enjoying relatively robust growth. We predict GDP grew by 0.4% in the fourth quarter.' The forecast came as war fears gripped financial markets. Sterling and the euro hit three-year highs of 1.6186 and 1.0668 against the dollar after Iraq's President Saddam Hussein said he had mobilised his army. Investors piled into safe-haven gold, which hit a six-year high of $358 an ounce. The FTSE 100 share index slipped into the red. //www.thisislondon.com