Double-dip recession risk overplayed, HSBC chief economist says

The prospect of a double-dip recession has been overplayed, according to HSBC chief economist Dennis Turner, speaking at a Citywire conference for financial advisers yesterday.

The UK economy has recovered from recession thanks to the combination of extraordinary monetary and fiscal stimulus from the Bank of England and the government, said Turner, speaking in Brighton.

The combination of a low base rate and weak sterling will stimulate growth, said Tuner, adding that he agreed with the government’s prediction of 1.2% gross domestic prospect growth in 2011.

Turner said he was confident the UK had experienced a U-shaped recession and that worries about government spending cuts and the eurozone sovereign debt crisis would not lead to a double dip.

‘There is a consensus among economists that the double dip is not on the agenda and we will inch forward into a traditional U-shape. That is good because a sudden bounce poses problems for inflation and interest rates,' he said.

Turner predicated that the Bank of England would raise interest rates next year, predicting in the worst case scenario that base rate would reach 2.5% by the end of 2011.

He added that the potential impact of Chancellor George Osborne’s proposed public sector cuts had been exaggerated.

‘It will make a difference but not an enormous difference,' he said. 'What people have to get in context is there will be still a central government on October 23,’ said Turner.

‘If George Osborne hits every single possible target in 2015 the government will still be spending £750 billion pounds of our money. It [government spending] will still account for 40% of the economy…the amount of debt that comes off is still relatively small.’

‘We have a big public sector debt at the moment but it is not costing that much at the moment,’ said Turner.

He said there was only a faint possibility of one of the eurozone countries defaulting, but added that the prospect of stronger European economies having to support the weaker members of the euro could hit UK export growth.

‘If Germany is writing cheques to Greek they are not buying our exports,’ he said.