EU report says UK could face double dip:

  • Report warns the UK could slip into negative growth over next six months
  • PM says the Treasury is planning for all eventualities
  • France and Spain could be next to face contagion as Italy borrows another £2bn in order to stave off bankruptcy
  • UK growth expected to slow to 0.7% by end of this year and 0.6% in 2012
  • In the eurozone, growth is expected to be 0.5% next year

Britain was preparing for economic ‘Armageddon’ last night as the European Union warned the UK is at serious risk of a double-dip recession.

The toll of the turmoil in Europe to our economy was laid bare in a report which predicted the UK could slip into negative growth over the next six months – and economic forecasts were slashed for the whole of Europe.

David Cameron said the Treasury was planning for ‘all eventualities’ and warned eurozone leaders they have to act now or face a ‘moment of truth’ that will leave the world in a worse position than the 2008 credit crunch.

With fears that the euro could collapse altogether, Business Secretary Vince Cable said that such an outcome would unleash an ‘Armageddon scenario’ that would drag British banks down as well.

With Italy forced to borrow £2billion more yesterday to stave off bankruptcy, fears were growing last night that France and Spain will be the next to face contagion from the debt crisis as the interest they have to pay on their debts crept inexorably upwards.

The burgeoning crisis spread yesterday when the EU admitted that the debt disaster is now obliterating the prospects of healthy economic growth in Europe.

Officials in Brussels painted a grim picture of the UK’s economic prospects for the next two years, warning ‘contraction in GDP in at least one of the next few quarters cannot be ruled out’ – code for a double dip recession.

The report forecast that British economic output would grow by just 0.7 per cent in 2011, while inflation and unemployment rise.

And in a worrying sign that the economy could stagnate well into next year, growth will slow even further in 2012, to 0.6 per cent.

The prognosis for the eurozone is even bleaker, the report said, warning that economic recovery in the single currency has ‘come to a standstill’ – with growth projected to be just 0.5 per cent next year, compared to a previous forecast of 1.8 per cent.

The Commission’s economics supremo Olli Rehn said: ‘Growth has stalled in Europe, and there is a risk of a new recession.’
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