European Commission expects UK economy to grow just 1.1% in 2008

Britain, Germany and Spain are facing a recession in 2008, according to the European Commission.

The Brussels-based organisation said all three countries would experience two consecutive negative quarters of economic growth – the technical definition for a recession.

The European Commission said the UK economy is expected to shrink by an annual rate of 0.2% in each of the next two quarters. Volatile financial markets and the housing slump were blamed for the gloomy outlook.

Latest official figures show that the UK economy did not grow at all in the second quarter of 2008.

The Commission said the UK economy would grow just 1.1% in 2008, significantly less than the 1.7% previously forecast, and a stark contrast to the official Treasury forecast of 2.5%.

Joaquin Almunia, economic and monetary affairs commissioner, said problems in the financial markets, rising commodity prices and the slump in housing for the dismal outlook.

He said: “In a context of an unusually high degree of uncertainty, the external headwinds not only had a direct adverse impact on inflation and capital costs, but also an indirect one on confidence.”

The outlook for the growth in the eurozone was also downgraded. The 15-nation bloc which does not include the UK, had been predicted to grow by 1.7% but this has now been lowered to 1.3%.

Statistics from earlier this month showed the region’s economy shrank by 0.2% between April and June, the first decline of the bloc since its creation in 1999.