Britain&#39s economy is &#39in recession&#39

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: &#39It looks like the UK&#39s unbalanced economy may finally have fallen over. The recent softness in retail sales, coupled with a rapid deterioration in the UK&#39s net exports and ongoing weakness in capital expenditure, point to a quarter-on-quarter fall in GDP of 0.3%.&#39

&#39Even allowing for a modest acceleration in consumer spending from the fourth quarter&#39s 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.&#39

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&#39s 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&#39s 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%.