Turmoil in the euro region -- the biggest market for British goods --, rising unemployment and government austerity measures are sapping confidence in an economy that has recovered barely a half of the output lost during the 2008-2009 recession, which was the deepest since World War II. Only the recoveries in Japan and Italy are further behind among Group of Seven nations.
IMF Forecast
The IMF yesterday cut its 2012 U.K. growth forecast to 0.6 percent from 1.6 percent as it predicted a mild recession in the 17-nation euro zone and slowing growth in China. Ernst & Young meanwhile says the U.K. economy may contract again the first quarter, marking its first double-dip recession in more than three decades.
The threat of a return to recession will increase pressure on Chancellor of the Exchequer George Osborne over his 150 billion-pound fiscal squeeze, which will cost 700,000 government jobs and see spending cuts persist well beyond the 2015 general election.
Osborne and Prime Minister David Cameron say their deficit- reduction plan is isolating Britain from the havoc in the euro region, where France and Austria lost their top AAA credit ratings at Standard & Poor's this month. The 10-year gilt yield was at 2.18 percent late yesterday in London, compared with rates of 3.15 percent in France and 5.39 percent in Spain.
Bloomberg News