Debt problems may worsen as economist issues lost decade warning

Britain is heading for a Japanese-style "lost decade" of very low economic growth, an economist has predicted.

Chief economist at Ignis Asset Management Stuart Thomson issued the gloomy prediction on the basis that the Bank of England is being too optimistic about the prospects for growth, a view which, if true, could spell very bad news for those trying to get debt free.

He said that while its current assessment is based on the historical truth that past recessions have not been as deep as first thought, the substantial recoveries the economy has made from them have resulted from consumers spending and borrowing more, whereas now people are trying to reduce their debt.

Mr Thomson said the Ignis view is the Office for National Statistics has produced a "misleading picture" of the economy based on an optimistic reading of data and that the reality for the UK is the economy will not reach its pre-recession strength for another 70 quarters.

Such a scenario would be similar to the Japanese experience after it went into recession in the early 1990s, where – despite persistently low interest rates – growth remained minimal fr several years.

Mr Thomson's predictions for growth were that the current level is "as good as it gets" and this year will see gross domestic product (GDP) expanding by 1.1 per cent, with 1.3 per cent growth next year.

However, this view is at odds with two recent reports on the economy, by the National Institute of Economic and Social Research (NIESR) and the Confederation of British Industry (CBI).

Both said this year would see 1.3 per cent growth, with the NIESR forecasting two per cent growth in 2012 and the CBI expecting 2.2 per cent.

Posted by Paul Thacker