EC predicts UK recession

The European Commission has predicted the UK will be in recession by January 2009.

The analysis was conducted by the EC as part of its interim forecast for every country in the European Union.

Following zero growth in Q2 2008, the EC predicts the UK will see negative growth of -0.2% in Q3 and Q4. Two successive quarters of negative growth constitute a recession.

The eurozone saw economic growth of -0.2% in Q2 but the EC predicts this will rise to 0% growth in Q3 and 0.1% in Q4.

Germany, France and Italy experienced negative growth in Q2 but only Germany is predicted to go into recession.

Joaquin Almunia, economic and monetary affairs commissioner at the EC, says: “We must speed up the implementation of a road map to help restore financial confidence.”

The heads of HBOS and Nationwide offered gloomy forecasts for the domestic mortgage market last week.

Andy Hornby, chief executive of HBOS, predicted that liquidity will not return to the market until 2010.

He says: “It’s going to take 18 months before US house prices rise again, which is what’s required for banks to have the confidence to start lending.”

Graham Beale, chief executive of Nationwide, says UK house prices could fall by 25% before the market starts to improve in 2010.

And Savills Private Finance forecasts a 25% fall in house prices over the next 18 months.

Its Residential property focus report suggests that the devaluation will present opportunities for clients looking to buy property.

But it stresses that this could lead to a polarisation of the market, with the equity-rich at one end and borrowers in negative equity at the other.