UK will not recover from recession until 2015, warns CEBR

The UK economy is not likely to recover fully from the current downturn until early 2015, when it should have returned to the pre-crisis peak level of output reached in the first quarter of 2008, according to the Centre for Economics and Business Research.

The Office of National Statistics today (22 December) revised its previous estimate of Q3 gross domestic product (GDP) growth up to 0.6 per cent from 0.5 per cent, citing strong output from the services sector.

Data showed that household incomes rose slightly, but most of this was put away as the savings ratio increased from 6.4 per cent in Q2 2011 to 6.6 per cent in Q3.

Tim Ohlenburg, senior economist at the CEBR, said: “Households are keeping up their debt reduction efforts, mirroring the public sector. In this environment of general deleveraging, strong growth is out of the question.”

He pointed out that compared to the third quarter of 2010, GDP is only up by a “lacklustre” half a percentage point.

Mr Ohlenburg said: “The disappointing performance of the UK economy becomes even clearer when considering that output was 3.8 per cent lower in Q3 2011 than at the pre-crisis peak in Q1 2008.

“A alternative definition of recovery from a recession is that the recession is over when the economy has reached its previous peak level of output. We estimate that it will take until the first quarter of 2015 for output to climb back to this level.

“In other words, after three and a half years the UK has only reached the middle of its seven lean years that follow the fat financial boom years.”

He claimed that in this light, the “bleak” economic indicators released over the past year are less surprising, citing that unemployment has climbed to 8.3 per cent, manufacturing has contracted and the housing market is stagnant.

Mr Ohlenburg said: “For the last quarter of the year, we expect a fall in output, while next year is forecast to see slow growth similar to the overall performance of 2011.

“Government will continue to pursue its course of deficit reduction while the Bank of England supports the economy with further quantitative easing.”