Posted by: acudworth | January 31, 2010

Heading For A Double Dip?

Britain has been one of, if not the hardest, hit country by the recession.  Figures released last week showed our economy grew by 0.1% in the 3rd quarter bringing us officially out of recession, but as confidence begins to return are we really out of the woods?

Well, a survey of Business leaders by PricewaterhouseCoopers puts a damper on the initial optimistic mood.

While the prevailing view from UK businesses is that the economy is nearing or has already reached the bottom of the recession, fear of a W-shaped or ‘double dip’ recession remains high.

According to PwC the main areas of concern are:

  • political instability a key concern
  • lacklustre business confidence
  • niche businesses a hit in the North
  • construction and engineering hardest hit sectors
  • tax rises stifling entrepreneurship

The risk of a double dip has been around since the start of the recession, now with an ever increasing budget deficit of over £180 billion (and forecast to reach £200 billion) the likelihood seems greater and greater as each day goes by. If we do not curb our expenditure quickly we could risk our credit rating being downgraded from the current AAA rating we have, and coupled with a huge budget deficit, make us slip back into recession. On the other hand if we start repaying large amounts of debt too quickly it can also hamper the recovery. It is a tough balance to get right, leading to the uncertainty in analysts forecasting our future economic position.

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Responses

  1. A conspiracy theorist might question the veracity of the data suggesting that we have moved into growth, and suggest that we are in fact still in the dip. There is always some inaccuracy in data collection and the figures are updated over time, and it may be that we are still in recession and hoping that the rosy picture of moving into growth will generate the confidence that will spur the economy. Time will tell! The Governor of the Bank of England is suggesting that the heady heights of 2.5% are a long way off which makes me wonder about the sustainability of the ‘growth’ especially as inflation is due to hit 3% which in the past would have meant higher interest rates – whatever happened to Monetary Policy?

  2. Have a read of this article from another blog:

    Recession has ended, but only just.
    Nigel Tree

    Surprising figures just released by the ONS show that Gross Domestic Product (GDP) increased by 0.1% in the fourth quarter of 2009, compared with a decrease of 0.2% in the third quarter. This was put down to growth in both services and production.

    However, this figure was quite surprising as most commentators were expecting a larger rise, even up to 0.4%, although this does follow on from six consecutive quarters of negative growth. The UK recession commenced in the April-June quarter of 2008 and the economy has contracted by 6.0% over this period.

    So, not so much ‘out of the woods’ at the moment, but at least we can see a patch of blue sky through the trees. One thing to bear in mind is that this preliminary estimate of GDP is made with only about 40% of the data available and every first estimate since the first quarter of 2007 has been revised later.

    The 0.1% GDP growth was due to growth in production industries and services.

    The 0.1% GDP growth was due to growth in production industries and services.

    The detailed figures show that total production output rose by 0.1% in the fourth quarter, compared with a fall of 0.9% in the previous quarter. The largest contribution to this was seen from the manufacturing sector which recorded a rise of 0.4%, compared with a fall of 0.2% in the previous quarter.

    So we have got a little bit of good news, but it is a bit like your favourite aunt only putting £10 in your birthday card when she usually gives you £20 – it’s welcome but at the same time a bit of a let down. Of course, we should remember too the news posted last week that unemployment had fallen for the first time in 18 months.

    The question now is what the political responses will be. Yesterday, Gordon Brown said: “The biggest mistake we in Britain and individual countries could make would be to withdraw now from the supportive actions we need for growth and jobs.”

    This was countered by David Cameron who was demanding more urgent action and said: “That means some reduction in public spending plans in this coming financial year.”

    It seems probable that today’s GDP announcement will give more strength to the government’s argument. Perhaps, a refusal to cut spending before the election is not a political move after all? Okay, perhaps not.


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