Recent news on the US economy, most notably February’s sharp drop in non-farm payrolls, has left us even more pessimistic over the outlook for the US. We now forecast GDP growth of just 0.5% in 2008 (previously 1.3%), with a recession in the first half. As a result, we now expect the Fed to slash interest rates to just 1% by the middle of the year. (See US Economics Weekly, 10th Mar.) What do these changes mean for our forecasts for activity and interest rates in the UK and euro-zone?
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