09 January 2009
By Vivienne Russell
The recession will be deeper and more protracted than was thought just two months ago, according to economic experts and the chancellor himself.
Arek Ohanissian, an economist at the Centre for Economics and Business Research, said the organisation had had to revise its economic forecasts since the Treasury issued the Pre-Budget Report in November.
'Our latest forecast has no growth in 2010. You'll see some sectors doing well by the end of this year but [the recession is] certainly going to be deeper than [the government] expected in November, deeper than even we expected in November – and we were more pessimistic than them at the time,' he told Public Finance.
'It's going to be a long-drawn-out process because the recovery itself is going to be slower than most recessions' recovery.'
The CEBR is now predicting that it will take four and a half years – or 18 successive quarters – before gross domestic product returns to the level it was at in the second quarter of 2008, just before the economy started to contract.
The CEBR's assessment chimes with that of Chancellor Alistair Darling, who this week admitted that the country was 'far from through' the recession. He suggested that the economic forecasts that accompanied the PBR, which predicted that the country should now be at the mid-point of a one-year recession, would have to be abandoned.
Darling said the forecasts were based on data the Treasury had at the time. 'This year is going to be difficult, there are going to have to be some tough calls,' he told the Financial Times.
Conservative leader David Cameron this week presented his own contrasting prescription for recovery. He said Britain needed to be transformed from a 'spend, spend, spend society into a save, save, save society'. The Tories promised to abolish taxation on the savings of all basic rate taxpayers and to raise the tax allowance of pensioners by £2,000.
The changes would be funded by limiting most government spending to a 1% real-terms increase in 2009/10.
Darling condemned the plan as 'utter madness'.
Ohanissian was critical of the government's failure to learn from past errors. 'It's not very reassuring when they come back less than two months later saying they'd been too optimistic when they went through the same thing in the Budget last year,' he said.
PFjan2009
