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October 20, 2009

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Home » Business » Economy

UK likely to see slow, painful growth

BRITAIN is likely to experience a slow and painful recovery from recession despite growing optimism, a leading forecaster said yesterday, as the pound fell on speculation the Bank of England may extend its money supply program to boost lending.

The Ernst & Young Item Club predicted some growth in the second half of 2009 but said the domestic economy would struggle to achieve 1 percent expansion in 2010.

The sobering forecast comes ahead of Friday's eagerly awaited figures on gross domestic product, which economists believe may show modest expansion.

The British economy officially entered recession at the turn of the year following two quarters of negative economic growth - the widely accepted definition of a technical recession - in the second half of 2008.

Economists had pegged GDP to return to growth in the July to September quarter after a 0.6 percent contraction between April and June, but recent surveys on industrial production and business confidence have raised doubts.

"There could still be substantial pain to come for corporates and consumers," said Item Club chief economist Peter Spencer, a former Treasury official. "For a sustainable recovery the UK economy needs world trade to pick up and there is still not much sign of that happening."

The Item Club's 2010 GDP forecast, which uses the same model as the Treasury, did increase from its 0.5 percent prediction in July. But the 2009 forecast was lowered to a 4.5 percent contraction from a 4.4 percent drop.

There was some good news yesterday, with a Rightmove Plc survey showing London house prices gained 6.5 percent and countrywide prices rose 2.8 percent this month.

The pound fell against the US dollar yesterday after a Bank of England policy maker was quoted as saying he was "not worried about overshooting inflation right now."


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