There might yet be a last minute rush to the shops. For now, though, it looks likely to be an awful Christmas on the high street. Admittedly, the cuts in taxes and interest rates modestly improve the outlook further ahead - we now think that interest rates will fall all the way to zero at the start of 2009. But this will do nothing to solve the problem of banks cutting their lending to households. And with the economy set to contract sharply next year, unemployment will soar to almost 3.5 million. We now think that overall GDP will fall by 2.5% in real terms in 2009, with household spending falling by a similar amount. We think that spending will drop further in 2010, perhaps by 1.5%.
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