The Item club at Ernst and Young have signalled that following a sharp deterioration in the UKs economic activity, the UK in recession as measured by the official measure of recession, which is 2 consecutive quarters of GDP contraction. This is despite the fact that the officials at the treasury have yet to announce the recession. The reason for the confidence is that the Item club at Ernst and Young have mirrored the treasuries computer model and have used it in exactly the way that the treasury uses it. It seems logical to expect an announcement soon from the treasury that the economy is indeed in recession.

Speaking to reporters, Hetal Mehta said that the prospects for the economy aren’t as bad as they were during the 1929 crash but that the economy was “in for a painful 12 months”. The issue with this type of model is that it is backward looking and doesn’t take into consideration anything forward looking that the government might do.

Miss Mehta went on to say that the one bright spot was the inflation number, which seemed very likely to moderate substantially in the next 12 months as the effect of substantially lower oil prices from their peak feeds through into the real economy.

The ITEM club put their estimates of the UKs GDP at -1% next year before an anaemic 1% growth in 2010.

They went on to say that the UKs corporate earnings had already been adversely affected substantially by the high cost of commodities, particularly oil.

Ernst and Young went on to say that with plunging interest rates, falling inflation and a fundamentally strong economy, the recession would be short and shallow.

As a result of the slowdown, widespread cuts in investment and jobs will follow. So far the trouble has largely been consigned to the house building and financial sectors. The effects are likely to ripple out to the rest of the economy as we move though into 2009.

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Tags: Corporate Earnings, Economy, Ernst and Young, Hetal Mehta, House Building, Interest Rates, UK Recession, UKs Economic Activity