The worst since 1946: How this recession will 'cost 1 in 10 their jobs'
By James Chapman
Last updated at 12:01 PM on 01st January 2009
One in ten workers will be out of a job by the end of the worst recession in Britain since the end of the Second World War, business leaders warn today.
A devastating forecast from the British Chambers of Commerce says unemployment will rise to a peak of 3.1million over the next two years, some 10 per cent of the workforce.
A second report, from retail consultancy Experian, predicts that up to 1,400 retailers will fail this year.
The British Chambers of Commerce report said that economic situation is deteriorating so rapidly that national income will contract by 2.9 per cent in the 15 months to the end of September.
It predicts that in the 2009-2010 financial year, Government borrowing will hit an unprecedented £130billion - 9 per cent of national income.
A separate report, from the Centre for Economics and Business Research, predicts a 2.9 per cent fall in economic activity in 2009 - the steepest single-year drop since 1946.
The forecast from the BCC, which represents more than 100,000 firms, says Britain's budgetary position will remain 'extremely serious' for the next few years.
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In a blow to the Government's flagship policy of increasing debt in an attempt to spend Britain out of recession, it says the need to rein in borrowing as the economy improves 'will dampen UK growth prospects for a considerable period'.
It warns that there is a 'distinct risk' that Britain will be gripped by the nightmare of deflation for the first time since 1960.
By the second half of the year the cost of living will start to shrink.
While high inflation stimulates borrowing, deflation encourages saving and, as a result, discourages consumers and companies from investing and spending.
The report says weaker than expected economic growth and higher unemployment mean the public finances will be in an even worse a state than anticipated.
Scotland and the North West suffered the biggest year-on-year drop in shopper numbers during December with falls of 6.74 per cent and 6.69 per cent respectively.
The report from Experian said that the battered retail sector suffered its worst December for 30 years.
The last minute dash to the shops failed to boost footfall figures for the month, while heavy levels of discounting hit retailers' margins, it said.
Shopper numbers were 3.1 per cent lower during December than they had been in the same month of 2007, despite a massive 12.8 per cent jump in footfall during the last week of the month compared with the same period the previous year.
The group said 2008 had been an 'annus horribilis' for retailers, adding that the 'unprecedented' level of discounting this year had made comparisons with last year extremely difficult.
BCC director general David Frost said: 'I've worked through three recessions and 2009 looks like it will be one of the toughest years I've ever seen for UK plc.
'Some of the strain can be avoided, but only if the Government can address the two key problems of confidence and cash-flow. We must avoid losing viable companies during this downturn.'
Charles Davis, an economist at the the Centre for Economics and Business Research, said: 'We are now on the brink of what we think is likely to be the most difficult year for the United Kingdom real economy since the Second World War.'
He forecast that business failures will rise by 50 per cent in 2009 with at least 32,300 firms going bust.
Mr Davis predicts that the Bank of England would continue cutting interest rates this year and that they would hit 0.5 per cent before the summer.
Shadow Chancellor George Osborne said: 'Labour is bankrupting Britain again. Not only did Gordon Brown fail to fix the roof when the sun was shining, but the evidence is that his approach to the recession is failing too: his policies aren't making things better; they are making them worse.'
Jonathan de Mello, director of Experian, said: 'The last-minute surge in shoppers came as a relief to retailers but for most it was not nearly enough.
'The boost in numbers was driven by massive unprecedented discounting all at the expense of retailer margins.
'There is no disguising the fact that 2008 has been an annus horribilis for the retail sector and there is little prospect of improvement in 2009.'
The Experian group said there had been a 21 per cent year-on-year jump in the number of retail insolvencies during 2008, with high profile casualties such as Woolworths, children's wear group Adams and CD and DVD retailer Zavvi all calling in the administrators.
It predicts a further 440 retail businesses will fail during the first four months of 2009, with a total of 1,400 going under during the year as a whole.
It warned that the large scale of retail failures would have a significant impact on high street returns, affecting everything from investors' yields on rents to revenues for local authorities, as well as the obvious impact on people's jobs and livelihoods.
It added that the fall-out from the difficult trading conditions would also hit retailers' suppliers, manufacturers and service providers and would resonate throughout the entire economy.
Experian estimates that at least one in 10 stores will remain empty during 2009, with high streets in some smaller market towns suffering significantly higher vacancy levels.
Mr de Mello said: 'It has been the most challenging time for retailers for at least 30 years, trading conditions are very tough and the collapses we've seen so far are just the tip of the iceberg.
'At the moment there is too much space in the market and not enough demand. Many retailers are either making no margin or losing money. We anticipate that January will be the toughest for 30 years.'