Britain now faces a greater than 50 per cent chance of plunging into recession within twelve months, according to an economist.
Not only are finances stretched, meaning households have limited savings into which they can dip, real incomes are falling and the crackdown on unsecured lending is likely to make the usual buffer of consumer credit both less enticing and less readily accessible.
For this reason, with the UK consumer under assault, Joanna Davies, senior economist at Fathom Consulting, believes there is now a greater-than-evens chance of a technical recession in the UK over the next year.
The economist noted the UK economy has performed better than many expected since the EU referendum vote, but that this can be attributed to the strength of consumer spending.
Ms Davies said: "The tide has since turned: the brief period of real wage growth is over; household finances are stretched; and June’s inconclusive general election has reignited concerns about the nation’s economic prospects.
"With the key driver of UK GDP growth, the consumer, under assault, we believe that there is now a greater-than-evens chance of a technical recession in the UK over the next year."
A technical recession is defined by economists as two consecutive quarters of GDP contraction.
The IMF this morning (24 July) revised downwards its forecast for UK economic growth to 1.7 per cent, a cut from its previous estimate of 2 per cent. It cited the weakness in economic activity for the first quarter of this year as the reason for the downgrade.
Ms Davies said what she feels has been the surprisingly high level of consumer spending in the UK is the consequence of households bringing forward consumption in anticipation of sterling weakness pushing inflation upwards.
Her view is that this will lead to weaker consumer spending in the year ahead, and describes this as an "ominous" sign for the UK economy.
The latest UK inflation number, released last week and covering the month of June, surprised many market participants by coming in at 2.6 per cent, lower than the 2.9 per cent for May.
Bank of England governor Mark Carney has long taken the view that UK inflation would retreat as 2017 progresses as the impact of sterling weakness and commodity price rises falls out of the data.
John Greenwood, chief economist at Invesco Perpetual, has forecast economic growth of 1.4 per cent for the UK economy in the 2017 calendar year, down from his previous forecast of 1.6 per cent
