PwC advises businesses to plan for the deepest UK recession since the early 1980s
06/03/2009
PwC advises businesses to plan for the deepest UK recession since the early 1980s

Fuente: www.consultant-news.com  Publicación: 05.03.2009

The report sees the recession continuing throughout 2009 and into early 2010, with a peak to trough fall in UK GDP of around 4.5% between Q2 2008 and Q1 2010, similar to the early 1980s recession and worse than the mid-1970s or early 1990s downturns.

John Hawksworth, head of macroeconomics at PricewaterhouseCoopers LLP, said: “This relatively downbeat projection reflects a combination of rising unemployment, falling house prices, reduced credit availability and slower global growth.

“Furthermore, risks are weighted to the downside and we recommend that businesses should stress test their plans and valuations against a pessimistic scenario of an even deeper and more prolonged slump in which GDP falls by around 5% this year, followed by a further 2% fall in 2010.

“With further interest rate cuts likely to bring limited economic benefits, there needs to be an increasing focus on quantitative easing by the Bank of England to ease liquidity and credit conditions in key asset markets.”

Consumer spending is forecast to fall by around 3% this year, due to the severe squeeze from high debt levels, tighter credit conditions, falling housing wealth and rising unemployment. There is also expected to be a further real decline of around 0.75% in consumer spending in 2010, as households try to reduce their debt burdens and return savings ratios to more normal levels.

At the same time, PwC expects average UK house prices to fall by a further 15-20% this year and business investment to decline by more than 10% in 2009. The relatively cyclical manufacturing sector is expected to suffer particularly severely from the decline in world trade associated with the global recession, with UK manufacturing output projected to fall by more than 8% in 2009.

The report also warns that the budget deficit is projected to jump to around 10% of GDP in 2009/10, which would be the highest level since the Second World War. Bringing this deficit back down will require a combination of significant tax increases and tight public spending controls in the medium term, although such measures should not be introduced until after the recession is over.