UK faces ‘decade-long recession threat’

By DAN ATKINSON, MAIL ON SUNDAY ECONOMICS EDITOR
Updated:

Britain faces 'ten years of hard slog' to pay off towering public and private debts and fight its way back into export markets, a report will claim this week.
 
A 'lacklustre recovery' could easily slip back into recession and record levels of Government borrowing are 'not sustainable', according to the latest forecast by the independent Item Club.

And with the home market likely to be depressed for years as debtors repay what they owe, the chief source of growth for British businesses will be in servicing overseas customers.

Palace of Westminster

Threat: The UK faces 'ten years of hard slog' to pay off towering debts, according to the Item club

'Indeed, for many firms it will be a case of export or die,' said Item economist Peter Spencer. 'This will not be easy when you are starting way behind the Germans and everyone else in moving into these overseas markets.'

The forecast noted: 'Government support is being withdrawn and the economy must learn to stand on its own two feet. This balancing act is going to be difficult and heavily dependent on an upturn in the world economy. Companies have to chase overseas customers after a decade of relying on the domestic consumer.

'It means selling into emerging markets like China, where the UK has an exceptionally low market share.'

The report added: 'Producers have to muscle their way into new overseas markets. That will be much more challenging than just relying on domestic demand to pick up. Firms that are just waiting for domestic demand to pick up again are in for a nasty shock.'

Item uses the Treasury's computer model of the economy and is sponsored by accountant Ernst & Young.

Figures for growth in the fourth quarter 'will confirm that the recession is over', but there will be 'a weak recovery prone to relapse'.

Item said: 'Consumer confidence indicators suggest that the approach of the election is already focusing voters' minds on the huge bills that have to be paid once this is out of the way.'

These bills refer both to Government borrowing, likely to be £173 billion this financial year and £180 billion in 2010/2011, and to the £800 billion borrowed by British banks from abroad in 2000-2006 and lent on to people and businesses in the UK, said Spencer.

'The astronomical size of these debts means that this process will take much of the new decade, restraining borrowing and spending,' Item predicted.

In terms of official borrowing forecasts, Item said: 'We remain concerned that the Treasury's projections are based on very optimistic assumptions for both the pace of economic recovery and for the value of tax revenues raised for a given level of gross domestic product.'

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