The UK economy is currently experiencing an economic slowdown not seen since the early-Nineties recession.

This was the statement made by the Ernst and Young Item Club, an influential forecasting group, said the GDP growth in 2005 is projected to be 1.6 percent. This is just half the pace that was predicted in the Budget. The group is has come out to support the growing opinion that Gordon Brown is about to face a “black hole” in the public finances. The deficit is expected to be at least £10 billion.

The strong management of the economy was at the core of Labour’s election campaign, but Brown had to concede that GDP growth for 2005 is weaker than what he had hoped. The Chancellor is blaming the slow UK economic performance on record increases in oil prices and the weak demand for British-made goods from the rest of Europe.

High oil prices have been at the heart of the country’s problems because it is pushing up household energy bills and having a deleterious effect on company profit margins.

The Bank of England has already listened to appeals from the business sector and decided to cut interest rates last August as a means of cushioning the effects of the economic slowdown. But the British Chambers of Commerce is still calling for a second reduction in interest rates, in order to further alleviate company woes especially in handling their business finances.

But despite the gloomy forecast for 2005, the Ernst and Young Item Club is optimistic about the country’s prospects for the next year. The group predicts that a resurgence in exports will drive GDP growth. This could finally spur more entrepreneurs to start their own companies.

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