The British economy has slumped into recession, a leading investment bank has said.
ING Financial Markets has predicted that figures due for release by the government on Friday will reveal that gross domestic product declined by 0.3% during the fourth quarter of last year, with a further drop of 0.2% predicted for the present quarter.
Two consecutive quarters of negative GDP is generally interpreted as a definition of recession.
Economists at ING blame the decline on slowing high street spending, an increasing trade deficit and sluggish business investment.
Mark Cliffe, chief UK economist at ING, says: '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%.'
'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.'
The potential impact of war in the Middle East is also expected to dampen any turnaroung in 2003 as a whole, and ING says it is unlikely that growth will top last year's 1.6%.
On a positive note for borrowers, the bank also suggests the Bank of England may cut interest rates from 4% to 3.5% in March to encourage consumer spending.
Other city forecasts have been less gloomy than ING's forecast, with a consensus estimate among other city institutions that the economy will expand by 2.3% in 2003, with modest growth in each quarter. Chancellor Gordon Brown has pencilled in growth of between 2.5% to 3%.