New survey predicts swine flu slump

The Ernst & Young Item Club, the forecasting group, has released a negative set of predictions charting the possible effects of the disease, following on the heels of last week's warning by Oxford Economics. The Item Club is even more bearish, however, with a forecast of a 7.5 per cent hit to GDP for this year, based on 100,000 cases a year being reported by August and lasting for six months. A slump on that scale would be the worst since 1921.

The economy will then suffer with another 1.2 per cent decline next year as a result of further side-effects, the club forecasts. At the heart of its work are the predictions by the government's chief medical officer Sir Liam Donaldson, who has said that infections will reach 50 per cent, with a 0.4 per cent death rate. And the World Health Organisation too has confirmed the rapid spread of the pandemic as it moves around the globe through travel channels.

The global nature of the disease presents a big problem for the UK, with negative effects elsewhere combining to depress growth in the UK. The Club said, "With the Western world still teetering on the brink of deflation, it is not an exaggeration to say that a pandemic on this scale could tip it over the edge."

Even if the effects of swine flu are not as bad as expected the ITEM Club still expects a decline of 4.5 per cent in GDP for the year, a downgrade on previous estimates and an indication of the UK's severe underlying problems.