July 17, 2009 / 4:50 PM / 11 years ago

H1N1 flu seen prolonging, deepening UK recession

LONDON (Reuters) - The H1N1 flu pandemic is likely to push Britain into a longer and deeper recession because of its potential impact on consumer spending and travel, a consultancy and a business association estimated on Friday.

The total cost of the flu outbreak for Britain was likely to be around 5 percent of GDP, on top of the impact of the worst financial crisis to hit the country in decades, a report from consultants at Oxford Economics said.

This view was broadly shared by the Federation of Small Businesses, which said the pandemic could force 120,000 small businesses to suspend operations.

“We’re expecting the cost to the whole economy of 3 percent of GDP,” said the organization’s spokesman Stephen Alambritis, who predicted disruption from canceled meetings, suspended travel and parents staying home to care for sick children.

“The cost of absence at work is the main cost that has to be met by businesses, and that’s up to about 900,000 pounds a day,” he said. “We’re expecting the impact to start in September, but the worst will be the last quarter of this year.”

Britain has Europe’s highest death toll to date from disease, with 29 fatalities since the virus emerged in Mexico in April, and the World Health Organization said 431 people had died globally as of early July.

British health officials are initially planning for up to 30 percent of the population to fall ill, with up to 12 percent of the workforce absent at once.

Both Alambritis and Oxford Economics said the pandemic’s most severe impact would occur in the last three months of 2009.

Even without the impact of the pandemic, Britain is facing its deepest recession since World War Two — earlier this week, the International Monetary Fund forecast a GDP contraction of 4.2 percent for Britain this year, with 0.2 percent growth in 2010.

Marie Diron, author of the Oxford Economics report, said she expected the pandemic to cause the economy to contract by an extra 1 percentage point this year, and a total loss of 5 percent of output during the six months of the pandemic.

This estimate assumes 30 percent of people worldwide and in Britain are infected, of whom 4 in every 1,000 will die, and that the economy will be affected in a similar way to how SARS hit east Asia in 2003.

But given the fragility of the world economy because of the financial crisis, Diron said there was a risk the pandemic could tip Britain’s economy into a downward deflationary spiral, potentially causing the economy to shrink 7.5 percent next year.

“(In) the worst-case scenario, recovery is postponed by three to four years,” she told Reuters, adding that between 2010 and 2012 consumer prices would fall due to cutbacks in spending.

Editing by Ron Askew

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