European policymakers are warning of a tough time ahead for UK consumers.
The UK is expected to be hit harder by the impending recession than most other countries in the European Union. According to a report by the European Commission, only Estonia and Latvia will emerge from the downturn in a worse state.
Its autumn forecast shows that the UK is likely to suffer from high unemployment, slower consumer spending and a growing budget deficit in 2009. This will cause the economy to contract by one percent before staging a slight recovery in 2010.
In comparison, economic growth across the European Union as a whole will drop by 0.2 percent next year. This will be followed by growth of 1.1 percent the year after.
The jobless total in the UK will rise to 7.1 percent in 2009, up from 5.3 percent at present, while the government's deficit will rise by six percent as a result of falling tax revenues, the report adds.
"The central outlook envisages a marked fall in private consumption in 2009 and 2010, driven by more restrictive borrowing conditions and lower household wealth," it states.
The European Central Bank is expected to cut interest rates by at least 50 basis points this week in a bid to stave off a recession. According to analysts, its move is likely to be echoed by a similar reduction in UK base rates by the Bank of England.
