Recession almost inevitable, says BCC

Up until this morning, the big business groups have avoided uttering the "R" word. David Frost, director-general of the BCC, broke ranks big time this morning. The BCC’s predictions make chastening reading, but opinion will be divided over his recommendation that the MPC cut interest rates; last week, CPI inflation hit five per cent (two per cent above the Bank of England’s target). Most striking perhaps is the prediction that unemployment will hit two million. One of the big imponderables is the effect of incoming workers from Central and Eastern Europe: will they be tempted home as the UK economy droops; and will their jobs provide employment for British workers? to mop up any future job-loss hit? It’s going to be a testing few months ahead.

The BCC’s main predictions are:

British businesses are facing two very difficult years. There is now a distinct possibility of technical recession. UK unemployment is likely to increase by some 250,000-300,000 over the next two to three years. The longer the MPC waits before cutting rates, the bigger the danger that the situation will deteriorate, and the policy choices will become more difficult and unpleasant. The “golden rule”, which prescribes that the Government will only borrow for investment over the economic cycle, is very likely to be breached. Government temptation to raise business taxes because it is running out of money, must be forcefully resisted.

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