Chances of recession rise as economy stutters

By Jonathan Cable

LONDON (Reuters) - The chances of a recession are rising as the economy grinds to a halt, compelling the Bank of England to cut interest rates early next year after inflation has peaked, a Reuters poll showed on Thursday.

The monthly poll, taken September 4-11, gave a median forecast of a 55 percent chance the UK would skid into recession within the next 12 months, significantly up from 45 percent in last month's poll and above 50 percent for the first time.

"The latest data suggest that it is now slightly more likely than not that the UK could tip into at least a mild recession during the second half of 2008," said John Hawksworth, head of macroeconomics at PricewaterhouseCoopers.

Recession is typically defined as two consecutive quarters of contracting gross domestic product (GDP) and this is the first time this year economists answering that question have given it a more than 50 percent chance of happening.

The economy is expected to expand just 1.1 percent in 2008 while growth will be just 0.7 percent in 2009, well below the 1.4 and 0.9 percent forecast last month and way down from the healthy 3.0 percent growth seen in 2007.

This represents the eighth consecutive month the median 2009 forecast has been downgraded.

However forecasts were wide, ranging between 0.5 and 1.8 percent for this year and between a 0.6 percent contraction and 2.7 percent growth for 2009.

The Organisation for Economic Co-operation and Development said last week the British economy was the only one of the G7 heading into recession, a view seconded by the European Union Commission on Wednesday.