Forecasts fear new threat to Britain

Press, 18 November 1981, Page 26

Forecasts fear new threat to Britain

PA London A deterioration in the world economy might pose a new threat to Britain, just when the worst of the domestic recession appears to have passed. City analysts are becoming increasingly gloomy about the international economic outlook as the effects of high interest rates and tough policies take their toll in the main industrialised nations. Forecasts from a firm of city stockbrokers. Phillips and Drew, predict that output in the non-communist industrial world will rise by only 1.5 to 2 per cent in 1982, compared with an average of

about 3.5 per cent in the 19705. This would be a little better than the 1.25 per cent increase in output expected this year but less than that predicted only a few weeks ago. Economists at Phillips and Drew are much gloomier about prospects in both the United States and West Germany, which are among Britain’s biggest markets. - The output of goods and services in the United States is expected to expand by only 1 per cent next year — only half the rate of "growth likely this year and not much more than half the level which had been expected previously for 1982. At the" same time, only a slight pick-up is expected in Europe in 1982. The forecast growth in West Germany has also been halved, for the year as a whole, with a further fall in the country’s output foreseen during the first half of 1982. Another city stockbroker. Simon and “ Coates, has revised downwards its forecast growth for the United Slates next year, although it is less pessimistic than some other analysts. However, it is gloomier about the outlook for output in Britain. Neither broker sees Britain achieving more than 1 per cent growth in

1982, after two years of contraction. This bleak picture is likely to be confirmed by econo- , mists of the Paris-based Or-- . - ganisation for Economic Co- . operation and Development .-■ next month when it produces its own forecasts at the • economic policy committee , meeting this week. Last summer, 0.E.C.D...economists were predictingthat economic recovery in • the industrial world would bemodest and hesitant because . of strong deflationary forces., acting on major countries. It . now seems likely that even ■ this forecast could prove toooptimistic. ; . Dr Paul Neild, chief econo-. * mist at Phillips and Drew/-., says in the latest world in-.:-vestment review that despite- .. the agreement to freeze oil prices, prospects for world, activitiy are discouraging, .« with the United States lead-, ing the world down. The cause, is the lagged effect of high interest rates'. _ combined with tight fiscal ( ' policies pursued in most' countries in response to the ( big oil price increase last;, year. High interest rates have, had a substantial impact onoutput in the United States.. which is set to fall signifi-. cantly at least up to the’: second quarter of next year.