Poll shows risk of recession rising

By Jonathan Cable

LONDON (Reuters) - A rapidly slowing economy is at significant risk of falling into recession and will force the Bank of England to cut interest rates next year even in the face of high inflation, a Reuters poll showed.

The quarterly poll of 70 economists, taken July 16-23, showed economists cut their growth forecasts for 2008 to only 1.5 percent from the 1.7 percent they predicted in a June poll.

At the same time, their prediction for 2009 has come down to 1.0 percent from 1.5 percent.

This is a sharp slowdown from the 3.0 percent growth seen in 2007, and the prospect of a recession has increased, with the median forecast giving a 40 percent chance of this happening in the next 12 months, 10 percentage points up from June's poll.

"The UK economy is clearly heading for at least a sharp slowdown with about a one in three chance that this could turn into an outright recession," said John Hawksworth, head of macroeconomics at PricewaterhouseCoopers.

Recession is typically defined as two consecutive quarters of contracting gross domestic product (GDP).

Economies around the world have been undermined by a credit crisis that started with mortgage problems in the United States and falling house prices. Britain's housing market is now unravelling, darkening the outlook for consumer spending.

But the Reuters poll stood in contrast to the latest outlook from the International Monetary Fund. Last week the IMF urged policymakers to head off rising inflationary pressures and predicted the UK economy would grow 1.8 percent in 2008 and 1.7 percent in 2009, revised up slightly from its April projections.