Britain ‘already in recession’

Consumers who are already struggling with debt may find their situation deteriorates further as the country is already back in recession, according to one economic analysis.

The Ernst and Young ITEM Club has claimed: “The UK is probably in technical recession at the moment and likely to remain stalled until the second half of the year when falling inflation should provide a platform for a consumer recovery.”

Such an argument suggests that the final quarter of 2011 saw Britain’s economy contract and that this will be the start of an official recession as the first quarter of 2012 will also see negative growth.

As yet, however, even one quarter of decline has yet to be confirmed, making the conclusion tentative.

However, if it is the case that the UK has returned to recession like many of its eurozone neighbours, the situation may make matters worse for many as rising unemployment could make it particularly hard for some to pay back what they owe.

Andrew Smith, ClearDebt’s Director of Marketing and External Affairs comments:

“A lower inflation rate doesn’t look like it will be good news for people trying to repay debt. Creditors do aim to ensure people in debt repayment plans have enough income to meet essential needs, but debtors will always find it hard when the amount needed to meet those needs is rising sharply and the amount creditor guidelines allow doesn’t change as fast. Costs of heating the home and getting to work can’t be avoided and have seen sharp rises. Creditors need to respond to this if the people who are working hard to repay their debts are going to be able to afford to stay on plan”.

The one consolation in the ITEM Club prediction is that of a recovery in the second part of 2012, which would mean the second recession would be much shorter than that of 2008-09.

And the forecast of lower inflation does appear to be accurate, with the Office for National Statistics revealing today that the Consumer Prices Index (CPI) rate dropped in December to 4.2 per cent, compared with 4.8 per cent in November.

It means the rate of CPI has fallen by one per cent since its peak in September last year and this comes before the impact of last January’s VAT hike drops out of the equation, which will have a downward impact on this month’s figures.

By James Francis