Britain already in recession, expert warns

I wouldn't have thought that you needed to be an expert to suss that one out. What will they give us next? Noah hears rain forecast, opens account with Jewsons?

(Telegraph) -- Britain is already in recession, one of the City's leading experts has warned.

The economy started shrinking last month and will continue to contract until Spring 2009, according to Lehman Brothers, one of the world's major investment banks.

The warning comes amid growing fears that the UK is facing its first major slump since the early 1990s, and follows a series of warnings from businesses and consumers.

However, while most experts are predicting only a slowdown in growth later this year, Michael Hume of Lehman Bros said that a recession - defined as two or more quarters of successive economic contraction - was already underway.

"We think the economy will contract in the third and fourth quarters, and then in the first three months of next year," he said.

"It would be quite surprising if the recession didn't actually start in June."

However, in more welcome news for struggling households, he predicted that as a result of the slump the Bank of England will be forced to cut interest rates to 3.5 per cent or lower, with the first cut coming amid the worsening barrage of economic news in November.

A number of economic forecasters have warned that recession is a significant possibility, including Capital Economics and the British Chambers of Commerce.

House prices are already falling at the fastest rate since the early 1990s property crash, according to figures from Nationwide building society, while official statistics showed recently that families' disposable incomes shrank in the first three months of the year.

With families squeezed by higher taxes, rising interest rates and a slowdown in salary growth, they have resorted to dipping into their savings in order to stay afloat, according to official figures which show the savings ratio has slumped to a near 50-year low.

Mr Hume said families would have to adjust to a fall in their standard of living as a result.

"There is nothing quite comparable to what we're going through at the moment," he said.

"There are some parallels with the 1990s, with house prices falling and so on. But on top of that you've also got this horrible commodity price shock which is eroding wages, and you didn't have that in the 1990s.

"This is neither the 1930s nor the 1970s but it has certain elements of both."