Page last updated at 11:20 GMT, Wednesday, 8 April 2009 12:20 UK

UK 'will not recover until 2012'

Shoppers on London's Oxford Street
Job losses are hitting consumer confidence

The UK economy could decline for another year and take a further two years to recover, according to a respected think tank.

A National Institute of Economic and Social Research study says the current economic decline is "very similar" to the slowdown at the start of the 1980s.

Chancellor Alistair Darling has already admitted the Treasury got it wrong over the length and depth of the recession.

The economy has contracted by 4.2% since May 2008, according to NIESR.

comparion of UK recessions

"The downturn since last autumn has been far deeper than people expected in any part of the world," Alistair Darling told the BBC's Andrew Marr Show.

He declined to forecast ahead of his Budget on 22 April how much the UK economy would shrink during the current year.

The latest NIESR estimate predicts a 1.5% decline in the first quarter of 2009.

Decline exceeding 1990s

Their forecast is consistent with what other independent forecasters are predicting for this year and next.

The total depth of the decline in output has already exceeded the downturn of the last recession in the early 1990s, the economic think tank said.

Although figures have not yet reached those of the 1980s recession, NIESR has recorded a similar pattern of decline.

"If the 1980s profile were followed, output would continue to decline for up to another year and it would take two further years before the level of output enjoyed at the start of 2008 would be reached again," said NIESR director Martin Weale.

Six rate cuts

In a separate study by Nationwide, UK consumer confidence fell in March as worries continued about jobs.

The UK jobs market is at its worst in the 11-year history of the survey
Mike Stevens
partner, KPMG

The building society's consumer confidence index dropped two points to 41.

The Bank of England's Monetary Policy Committee (MPC) begins its latest interest rate-setting meeting on Wednesday, with its decision due to be announced at midday (1100 GMT) on Thursday.

The MPC is not expected to cut the Bank rate further from its current record low of 0.5% having cut the rate six times since October in attempt to boost the economy.

Jobs market

UK unemployment recently hit two million for the first time since 1997.

Nationwide said consumer confidence was "broadly stable since the start of the year, but feelings about the current labour market have weakened".

"Further reports of job losses are likely to have affected consumers' views of this," the report said.

Increased optimism towards the current and future economy is encouraging
Fionnuala Earley, Nationwide

Nationwide said consumers' confidence fell for the ninth consecutive month in March.

The building society's survey came as a report from the Recruitment and Employment Confederation/KPMG showed little sign of a strong recovery in the number of permanent jobs available in the UK.

Although its "permanent placements indicator" rose to 33.5 in March from 30.3 in February, that was still well below the 50 level, where growth begins.

'Increased optimism'

"These latest figures leave no doubt that the UK jobs market is at its worst in the 11-year history of the survey and recovery might take longer and be more protracted than many hope," said Mike Stevens, partner and head of business services at KPMG.

However, the Nationwide's survey of 1,000 consumers indicated that they had became more optimistic about UK economic conditions.

"Increased optimism towards the current and future economy is encouraging," said Nationwide's Fionnuala Earley.

And expectations for property price falls continued to moderate during the month, with consumers thinking house price values will fall by 3% in the next six months, compared with a predicted 4.7% drop in the previous survey.

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