UK Economy Facing Lengthy Recession
Even before the recent problems in the financial markets, the UK economy looked to be heading into recession. Economic growth was 0% in the second quarter Now, the recession could be much deeper than previously anticipated.
Bad News on Economy
- Falling House prices reducing consumer confidence and consumer spending
- Problems of Bradford & Bingley and HBOS will lead to less mortgages on market and likelihood of further house price falls.
- Manufacturing output, and employment decreased at the fastest rate since the severe recession of 1982. Manufacturing output has now fallen for 5 consecutive months, and illustrates how the ‘real economy’ is being affected by the slowdown - not just stock markets.
- Burdgeoning National debt leaves the chancellor with little room for manoeuvre. Expansionary fiscal policy requires more government borrowing, but, this would be difficult.
- Rising Unemployment. After a decade of low unemployment, unemployment is now rising very quick. Rising unemployment will increase mortgage defaults and cause more problem for the beleaguered banking sector.
- Credit Crunch - More still to come. A recession and continued fall in house prices will only cause further problems for banks who have holes in their balance sheets. There will be further difficulties on the stock market and borrowing will become more difficult, reducing investment.
Good News
The ray of hope is that at least cost push inflation appears to be coming down, the producer price index dropped last month, indicating lower retail inflation in the future. With oil prices also coming down as well, it enables the MPC to be able to cut interest rates which will hopefully lessen the impact of the slowdown.
Original post by Tejvan R Pettinger