British economic 'horror movie' to continue

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LONDON, July 21 (AFP): Britain's economic "horror movie" will continue in the months to come, with growth slowing considerably, while unemployment will rise and inflation will remain above government targets, an influential economic forecasting group said today.

The ITEM Club, which is backed by accounting giant Ernst and Young, predicts Britain's economy will grow by one per cent in 2009, much slower than finance minister Alistair Darling's own forecasts of 2.25-2.75 per cent, made when he delivered the annual budget in March.

Its report comes after Darling himself said in a newspaper interview published Saturday that the economic downturn here would be more "profound" than he expected, adding that the economic picture was "at the bottom end" of his range.

The forecasting group said that while the picture was not as bleak as the struggles that preceded a recession in the early 1990s, it was imperative that wages be kept in check so as not to let inflation, already at a 16-year high of 3.8 per cent annually, get out of control.

"It is imperative that wage increases remain restrained, despite the tremendous pressure from food and energy cost inflation... A general outbreak of wage inflation would spell disaster, requiring much higher interest rates and a recession in output to get inflation back under control."

According to the ITEM Club, house prices will drop on average by about 10 per cent through this year, and a further six per cent through 2009, and year-on-year inflation will remain above the government's two per cent target for the coming 12 months.