Monday, October 26, 2009

Still In Recession

After throwing everything at the economy, bar the proverbial kitchen sink, Britain's policy makers will be deeply disappointed to see the UK economy continue to decline, as the recession enters it's sixth consecutive quarter.


Source: ONS

Despite, zero interest rates, quantitative easing, tax cuts and a falling pound, the length of the recession is a reflection of how severe the credit crunch and asset bubble bursting was.

Whilst Germany and France have now recovered from recession, it is worth noting that largely they did avoid a property bubble and were not as dependent on the financial sector as the UK. The US and Spain, both of who shared a property bubble and bust, are also still in recession.

Yet, despite the continued downturn, which means the UK GDP has now declined 6%, and has become smaller than Italy's economy) the outlook is less grim than at the start of the year. Despite continued weak sales, confidence is surprisingly buoyant. Firms are hoping that the worst is over and the weak pound and recovery in the Eurozone will provide a good opportunities for growth over the medium term.

Yet, there are still various worrying signs which may delay the UK's recovery, meaning any recovery will remain anaemic.
  • Prospect of House price falls. Nationwide recently reported a 6th month of property price rises. This is certainly very helpful for improving consumer wealth and confidence, but the fear is 2010 could see further house price falls as the supply of housing increases.
  • VAT tax cut will expire at end of year
  • Prospect of fiscal tightening to deal with record budget deficits.
  • Continued rise in unemployment
  • Nervous consumers looking to save not spend.
Baring an unforseen event, this should hopefully prove to be the last quarter of negative economic growth. Yet, it will prove a difficult balancing act to prevent growth remaining very slow in the near future.

1 comment:

Tamara Holmes said...

A practical discussion on how to budget is incomplete without touching on debt. It's convenient to pretend debt is a painless way to finance a lifestyle. But, this is a trap that was easy to fall in the boom days when the phrase credit crunch was unheard of. But times are lean and debt spending is not an option. For one credit has dried up, it's just that much harder to get credit.