Monday 28th January 2008
A new report from Deloitte addresses the likely impact of the current upheavals within the UK economy and detects a "fundamental adjustment" of market conditions.
The Deloitte Economic Review anticipates economic performance is to weaken over the coming months on a scale not seen since the early 90s.
Similarities between now and then could see conditions deteriorate still further, carrying the country into a recession, the analyst predicts.
Overall, the report dismisses the claim that the credit crunch represents a "pause for breath" but instead terms the changes a "fundamental adjustment" to the economy.
The current "difficult period" is likely to last for longer than a year, economic adviser Roger Bootle forecasts.
But it is not all bad news, as there are some ways in which the UK is prepared for such events, he adds.
One such preparation is the monetary policy committee (MPC), which did not exist during the recession of the early 90s.
The MPC was formed in June 1997 when the Labour government came into power and Deloitte notes that this gives the economy an additional line of defence.
"Despite lingering concerns over the inflation outlook, the MPC should be free to cut interest rates sharply," Deloitte observes.
"We see rates eventually falling to just four per cent in 2009, which should push the pound lower."
This would represent a fall of 1.5 per cent over the next two years from the base rates current level of 5.5 per cent.
Such a trend could begin as early as February, as economists have noted the MPC frequently opts to change the rate in a month when the quarterly Inflation Report is published.
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