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Manufacturing at risk as prospect of recession looms.

Recession still looms, with manufacturing hit hardest

It appears touch and go whether Britain will dip into a recession this year despite the recent interest rate cuts.

In a joint report, Oxford Economic Forecasting and the London Business School raised their forecast for economic growth for the year to 0.5 per cent from the 0.4 per cent they had predicted in February. Growth would accelerate to 1.9 per cent in 2000 and 3.3 per cent the year after, they said.

Their figures are well below Treasury predictions of 1.0-1.5 per cent for this year and 2.25-2.75 per cent growth for 2000.

Britain's hard-pressed manufacturing sector would suffer its worst slump since 1991, the report said.

"The sharp fall in UK interest rates since October has done little to overcome the problem of the 'two-speed economy'," the report said.

While lower mortgage costs had led to a sharp bounce in consumer confidence and an apparent pick up in the service sector, manufacturing production had fallen by more than two per cent in the last seven months, it pointed out.

The recession in manufacturing reflected collapsing exports in the wake of the emerging markets crisis last year, it said, but added that a downturn in growth in continental Europe was also undermining British exports.

The strength of the pound was unsustainable in the medium-term yet there was no reason to expect a drop in its value soon.

"Consequently, net trade looks set to knock a further 1.25 points off GDP growth this year, with the visible trade deficit rising to almost pounds 27 billion," it said.

The forecasters predicted that underlying inflation would fall to 2.1 per cent by the end of this year, well below the Bank of England's 2.5 per cent target, and remain below target through next year.

This should allow another interest rate cut, to five per cent, by the middle of this year, the report said.
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Publication:The Birmingham Post (England)
Date:Apr 17, 1999
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