08 January 2008                                       

FIVE REASONS TO BE WARY ABOUT PROSPECTS FOR UK GROWTH IN 2008

The global credit squeeze, rising consumer debt, continuing fiscal deficit, inflationary pressures and a potential slowdown in the housing market will slow UK economic growth in 2008 and hamper our ability to react to potential problems, according to a new report from Alliance Trust Research Centre. In the latest report in its Current Issues series, Alliance Trust focuses on the UK economy and the five major challenges it faces in 2008, which will halve the rate of GDP growth to around 1-1.5%.

Looking at each challenge separately the report found that:

  • Global credit squeeze – there is a real risk that recent rises in interbank interest rates will impede consumer and corporate spending.
  • Potential housing market slowdown – the biggest risk to the outlook for the housing market is a rise in unemployment as this might lead to forced selling.
  • High levels of consumer indebtedness – with UK consumer debt having overtaken GDP, meaning we owe more than we produce in any single year, households have very little flexibility if their financial situation worsens.
  • Fiscal Deficit – tax revenue has grown robustly but so has government spending, and with the deficit continuing, the worst case scenario is that the government might be forced to cut spending or raise taxes at a time when the economy is slowing.
  • Inflation – there are signs of inflationary pressures in some sectors such as energy, food and transport, which have a particularly heavy impact on consumers and their spending. 

Commenting on the report, Head of Alliance Trust Research Centre Shona Dobbie said, “With this difficult combination of pressures facing us in 2008, we expect weaker levels of consumer confidence and spending to slow economic growth to 1-1.5% next year, around half this year’s level. We will be looking particularly closely at employment levels as the slowdown might be contained if employment remains relatively strong, particularly if the Bank of England quickly delivers the interest rate cuts that we expect.”

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·       A copy of the report ‘UK Economy – Five major challenges for 2008’ is available on www.alliancetrust.co.uk/news_views.htm

 

 

Contacts

Jane Holligan, Media Relations Manager          Anna Schirmer/Stuart Lerman/Anna Moulds

Alliance Trust PLC                                            Lansons Communications

Tel  +44 (0)1382 306064                                   Tel  +44 (0)20 7490 8828

Mobile  07745 783212                                      Email  alliancetrust@lansons.com

Email  jane.holligan@alliancetrust.co.uk      

Web www.alliancetrust.co.uk

 

Notes to editors

 

  1. Alliance Trust Research Centre was formed to provide economic and social analysis to deepen understanding of economies, markets and socio-economic issues. The Research Centre is part of the Alliance Trust, a FTSE-250 investment company.   

 

  1. Photographs of Shona Dobbie are available.