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Economics

The economy: GDP, after shrinking by 0.6 per cent in the third quarter of 2008, is expected to drop by more than 1 per cent in the fourth quarter when estimates emerge on January 23. In 2009 the economy is forecast to contract by 1.6 per cent, but worst case scenarios see a decline of more than 2.5 per cent, marking 2009 as the UK’s worst year since 1946.

Inflation: On the consumer prices index, inflation has already dropped to 4.1 per cent in November, from the 16-year high of 5.2 per cent reported in September, and is tipped to fall soon to the Bank of England’s target of 2 per cent.

Unemployment: The number of people out of work topped one million in November and those claiming unemployment benefits is forecast to climb towards two million.

Public finances: Government borrowing is set to soar, rising to £78 billion during 2008-09 and to £118 billion in 2009-10 on the Treasury’s projections. City economists fear the recession will undercut tax receipts more severely than the Chancellor has predicted.

Balance of payments: The current account deficit is forecast by economists to narrow to £37.4 billion this year from an expected £38.9 billion total for 2008, driven by falling imports as the recession undercuts consumer spending.

Interest rates: The Bank of England’s official base rate is expected to tumble still further to 1 per cent and ultimately to as little as 0.5 per cent – and perhaps to zero.

House prices: After dropping by between 12 and 15 per cent during 2008 on most benchmark measures, average house prices are tipped to fall by a further 15 per cent during the year.

Banking & finance

Loan guarantee: A new loan guarantee scheme for small businesses will be launched to help companies secure credit. The Government will be pressed to make more money available for staff training during forced shut-down periods.

Short-selling: The Financial Services Authority is to announce whether its ban on the short selling of financial stocks is to be abandoned or continued. Hedge funds and stock lenders are putting pressure on the City regulator to abandon the ban, which was introduced when Lehman Brothers failed.

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