Caution over recovery

Published:  24 September, 2009

LONDON: The recovery in the economy may be nothing more than a "false dawn", the Bank of England warned. The Bank's Monetary Policy Committee (MPC) said that although the technical recession is nearing an end, recovery would not be pain-free.

Rising unemployment and weak consumer spending will put the sustainability of the recovery in doubt. House prices and stock markets have risen over recent weeks, but the MPC suggested that weak bank lending, high levels of public debt, and damaged bank balance sheets could trigger an economic relapse.

Mark Clare, chief executive of house builder, Barratt, echoed these comments. He warned that a lack of mortgage finance, rising unemployment, and the consequences of the national debt will prove a "drag" on the market.

House building will take eight to 10 years to recover to the pre-recession era, Mr Clare said. Similarly, The Confederation of British Industry warned that the rush to buy big ticket items such as kitchens and furniture before VAT returns to 17.5% on 1 January next year – after it was cut to 15% in December 2008 to stimulate spending – will dampen consumer spending in 2010, ensuring growth is "fragile".

It expects household consumption to fall by 3.2% in 2009 and by 0.2% in 2010, although growth should return on a quarterly basis in the second half of the year. The CBI expects house prices, a key driver of RMI activity, to fall on average by 9.8% in 2009 as a whole and grow by 0.8% in 2010.

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