Recession can be avoided says IoD

Despite worsening economic figures, the Institute of Directors (IoD) still believes that a full recession can be avoided.

In its spring economic forecast, the IoD has warned that UK GDP growth will fall to 1.7% in 2008 and remain weak at 1.5% in 2009.

According to the IoD this GDP outlook could present the Chancellor with serious fiscal difficulties.

IoD Chief Economist Graeme Leach explained that in the recent Budget the Chancellor tweaked his GDP numbers and borrowing rose by £20 billion.

He went on to say that the elephant sitting at the table is what happens to borrowing if the economy undershoots the Chancellor’s optimistic GDP forecasts?

However, with regard to GDP growth the IoD argues that two factors suggest the UK economy will experience a soft as opposed to a hard landing.

First, whilst CPI inflation at 2.5% is above target and likely to deteriorate further over the coming months, the inflationary threat is not as great as that seen in the early 1990s when headline inflation nudged double digits.

Secondly, the corporate sector is in a relatively strong position as the economy enters the downturn.

Leach also said that by looking at the UK economy in isolation recession fears appear misplaced but when the US situation - and the impact of the financial crisis – are taken into account, the picture becomes decidedly murky.

But, we still think a recession can be avoided, he added.