Double Dip Recession

by Mark Johnston

Britain’s ‘great recession started in the spring of 2008, since then the recovery has been slow and weak, the weakest in 100 years. The gloomy outlook was enough to persuade the Bank of England to start printing money again in October 2011, which was aimed at getting banks to increase lending.

This strategy has worked for awhile but with the euro zone crisis affecting the price at which banks borrow their money at; amongst other things it appears we have now re- entered a recession.

It seems therefore that 2012 has begun badly especially for the UK’s economy. This shrank 0.3% in the last couple of months in 2011 and then again in the first months of 2012, by 0.2%.

These figures mark a technical recession or rather a double dip recession. This is the first double dip recession since 1975.

Double dip is defined as a return to recession before the economy has recovered back to its original peak.

Official data shows that the British economy is still 4% smaller than it was at its peak at the start of 2008.

George Osborne, Chancellor of the Exchequer, said “it is a very tough economic situation. It has taken longer than anyone hoped to recover from the biggest debt crisis of our lifetime”.

Official figures show that consumer debt has fallen marginally, however this does not take in to account the amount that has simply being written off by banks, as repossessions and bankruptcies rise.

Many consumers have followed the path of spending less and trying to pay down their debts, although this is necessary for the economy in the long term in the short term it can be a toxic combination.

This economic gloom is a great concern to the Treasury, especially as the coalition government’s plans for the future hang on being able to cut debt with a mixture of austerity cuts and economic growth.

The fear is that austerity combined with relatively high inflation will take both take money out of the pockets of consumers and therefore hold back the economy.

Ed Balls, Labour shadow chancellor has recently stated “we consistently warned the government that their austerity plan was self-defeating and that cutting spending and raising taxes too far and too fast would badly backfire”.

However, some analysts believe that the underlying strength of the economy is probably much more robust than data suggests.

Many economists suggest that the recession this time is expected to be brief and mild and that the UK could almost exit it immediately. However, the overall economic situation is unlikely to dramatically improve any time soon.

The International Monetary Fund (IMF) is fairly up beat, it upped its growth forecast for 2012 from 0.6% to 0.8%.

Chris Williamson, chief economist at Markit, warned that “the danger is that the gloomy data will deliver a fatal blow to the fragile revival of both consumer and business confidence, which has been seen so far this year”.


Story link - Double Dip Recession

Related stories to : Double Dip Recession