UK ‘set for new recession’

More firms could need business recovery services if a new forecast regarding the UK economy turns out to be accurate.

A survey by Standard Chartered Bank has concluded the country is facing a larger downturn than it previously thought, with a 1.3 per cent contraction in gross domestic product (GDP) in 2012.

It said the UK will be hit hard by events in the eurozone, which it forecasted to see a 1.5 per cent shrinkage.

Confidence is being hit and investment in machinery to make goods that would normally be sold in the eurozone is falling, the report noted.

And it also suggested the private sector is not only failing to make up for the loss of jobs in the public sector, but is itself suffering from the cancellation of government contracts.

The report went on to predict that banks will come under more pressure from the downturn as they struggle to meet their “balance sheet needs”, leading to a reduction in lending.

Such a situation could push many companies over the edge and create a situation in which a large number of corporate insolvency cases arise.

One slightly brighter spot is that inflation is predicted to drop to around its target level of two per cent on the Consumer Prices Index, although this may also lead to wages remaining subdued.

While that may help keep inflation down, it could also restrict public spending, which could hurt retailers.

The report went on to suggest that 2013 will see the UK economy growing again, with GDP up 1.5 per cent, while growth will increase to 2.3 per cent in 2014. By then, however, it may be much too late for some firms who are already struggling, except those who have made good use of business recovery services.

Standard Chartered’s predictions paint a worse picture for the UK than that forecasted by the Office for Budget Responsibility (OBR).

Last month, chancellor George Osborne revealed in his autumn statement that the OBR was predicting growth of 0.9 per cent in 2012 and of 2.1 per cent in 2013.