18th August 2011
Its current forecast is the bleakest since any from February last year, says the report, as Britain was coming out of the deepest slump since the 1930s – and even worse than its outlook in May 2008, when the recession had just started.
Also, Morgan Stanley has warned that the global economy is teetering on the brink of a recession, and slashed its growth forecasts, says the Guardian.
But behind the bleak headlines, what do the indicators tell us?
Unfortunately a few government bond markets, including the UK, are at yield levels which certainly imply recession – and maybe even depression, says Mindful Money economist blogger Shaun Richards.
Bond yield moves "can be a signal of what is to come for that reason and are a leading indicator," says Shaun on his blog. He adds: "In the UK we have a ten-year gilt yield which has dropped below 2.5% to lows not seen in my lifetime. Indeed this morning they have dropped to below 2.4% which I understand to be the lowest recorded for a century."
But just how grim could it get, ask commenters?
Ipis comments on the blog : "Having followed you from your very first blogs on notayesman, I am trying to think of a time when I have heard you being quite so grim. If your indices prove to be right and the world is heading for depression, then what? Do you believe, like I do, that we may well see another world conflagration on a scale not yet experienced? Or is that too grim even for you Shaun?"
James adds: "I do see serious social unrest down the track which could be described as conflagration. Governments have managed to spend so much more than they have taxed for so long that the credit card has maxed out. At exactly the moment when some pump-priming might be in order, the fiscal position is so bad that only token gestures can be made…Any fiscal wobble will be followed by downgrades and upwards cost of debt for each country affected."
A double-dip is a possibility, but far from definite – stress Mindful Money bloggers
Gemma Godfrey, head of research and chairman of the investment committee at Credo Capital, who also writes a Mindful Money blog, says: A ‘double dip' is not an impossibility in the UK as growth figures continue to disappoint (retail sales volume grew by a lacklustre 0.2% in July) and the outlook for consumption in Europe and the US, our largest trading partners, doesn't look promising."
But she adds: "The more significant risk on the cards is stagflation. If unemployment figures are not brought down then when inflation becomes an unavoidable issue, hands will be tied. If rates are raised, unemployment will get worse and if they are not raised, inflation will get out of hand."
Simon Ward, chief economist at Henderson, and another Mindful Money blogger believes the key risk to be an escalation in the Euro zone crisis. However, says a double-dip is "unlikely" unless the Euro zone unravels.
He says: "Historically, global recessions have been preceded by a contraction in the G7 inflation-adjusted narrow money supply. Real money growth weakened late last year, predicting the current economic slowdown. It stayed positive, however, and has picked up more recently. This suggests that the global economy will remain soft near term but start to revive in late 2011.
"The key risk to this scenario is that an escalation of the Euro zone crisis shatters confidence and causes consumers and firms to sit on their cash rather than spend and invest. The ECB ought to ease policy to reduce this risk.
"One difference from 2008 is the strength of corporate finances, implying less pressure to cut investment or jobs in response to sales weakness.
"The risk of recession in the UK stems from global more than domestic forces. Having survived this year's VAT and NI rises, the economy looked poised to do better before the recent souring of the overseas climate.
"To sum up, the second half of 2011 could be flat globally and in the UK but a renewed period of contraction is unlikely unless the Eurozone unravels completely."
…So is it a case of us talking ourselves into recession? asks Mindful Money's resident psychologist Kim Stephenson. After all, there are many differing opinions.
He says: "Nobody can accurately predict the market, and if you ask 100 experts whether whatever figures you've got indicate a double dip is starting and how bad it will be, you'll probably get at least 100 opinions."
People try to watch what others are doing. "So if the general feeling and comment is that gloom is appropriate and the dominant reaction is fear, then everybody sells and the economy gets worse (which accidentally makes the gloomy predictions right).
"Alternatively, If the general feeling and comment is that the light at the end of the tunnel isn't the train on fire, then sentiment that "this is a buying opportunity" spreads, greed becomes the dominant emotion, people buy and the economy gets better (which makes the optimistic predictions right).
"In theory, it's all about fundamentals, in fact it's all about emotions and guesswork about what other people's emotions are."
He concludes: "Afterwards (whether it double dips or not), everybody will say that whatever happened was inevitable and point to the infallible indicator that showed it, but they'll each point to different infallible indicators. And of course, in advance, those indicators aren't infallible, or everybody would be able accurately to predict the market and there would be no doubt about what is going to happen before it does."
Sign up for our free email newsletter here, for your chance to win an iPad 2.