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In depth: “UK economy is worse than we thought” 17 October 2011

Ernst & Young’s ITEM club today downgraded its GDP forecast for the year from 1.4 per cent, predicted three months ago, to just 0.9 per cent in today’s research data.

It has also stated that the additional £75 billion quantitative easing (QE) contribution will make very little difference to the UK’s economic situation as a whole.

Peter Spencer, chief economic adviser to Ernst & Young’s ITEM club, said the MPC’s self-imposed interest rate floor of 0.5% will not go far enough to help struggling consumers if inflation rises next year.

He explained: “It would provide a boost to borrowers and potentially help to stimulate consumer spending during the difficult months ahead.”

More red flags

Meanwhile, in Begbies Traynor’s quarterly ‘red flag’ report, travel companies were singled out for having record low cash reserves, supporting an Insolvency News story last month on the burden of ATOL renewals.

Julie Palmer, partner at Begbies Traynor, said the sector will inevitably see further insolvencies as there has been a 49% increase in companies facing ‘critical’ distress in the third quarter of 2011, compared to the same period last year.

She explained: “In the past quarter, sectors reliant on consumer discretionary spending are bearing the brunt of an increase in levels of financial distress.

“This economic malaise is rapidly spreading to other sections, with levels of ‘critical distress rising 41% in the construction sector, 63% in the property sector and 92% in the support services sector.”

Retail woes

Additional data released today from the British Retail Consortium (BRC) showed that even growth in online spending was down in the third quarter of the year, compared to the same quarter in 2010.

Stephen Robertson, director general of the BRC, said: “the BRC’s retail sales monitor shows growth in online spending haws actually slowed to 10 per cent, suggesting extra searches are a symptom of bargain hunting.”

By Joe McGrath

 

 

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