Is The UK Heading Back Into Recession?

Is The UK Heading Back Into Recession?

by Rebecca Hall on 2 Feb, 2012

The Bad News

Last week the IMF reduced its 2012 growth forecast for the UK from 1.6% to 0.6% and the Gross Domestic Product figures for the last three months of 2011 showed a decline of 0.2%.

The British economy stands between a rock and a hard place, with government cut-backs at home and Eurozone debt problems across the Channel. Many people in the UK are now feeling the pressure. With levels of personal debt at an all-time high, some are being forced to consider drastic measures, such as bankruptcy or agreeing to enter into an IVA (Individual Voluntary Arrangement).

The unemployment rate stands at 8.4%, with levels of youth unemployment even higher and this is predicted to rise further in the short term.

Meanwhile, at the Bank of England, Mervyn King’s comments reminded some of Churchillian blood, toil, tears and sweat, as he stated that a return to healthy economic growth could take years. This reflects the pressure many in the population are feeling as debts mount and they consider an IVA or similar solution.

The Good News

In 2007, the IMF failed to forecast the credit crunch. As with so many such institutions, it has a tendency to project the past into the future. It could, therefore, be equally wrong about the recovery.

Across the Atlantic, things are starting to look up. This is a Presidential election year and Obama wants a second term.

The New Year rally in stock markets appears to be gathering some strength, which suggests that investors expect to see a general improvement in business activity over the next six to twelve months.

The Greek debt crisis is regarded by some as having been blown out of all proportion to its size and overall impact on the European stage.

We may yet see the ECB stepping in as lender of last resort and answering Prime Minister Cameron’s prayers.

On the other side of the world, the latest figures from China indicated a revival in economic activity in the last quarter of 2011, following the central bank’s move to ease the previous lending restrictions.

Japan is still struggling to recover from the tsunami disaster, but many Japanese businesses are in a far healthier position today and stand to benefit from recent currency agreements across the region.

In Britain, the Bank of England has indicated that it could engage in another round of quantitative easing to pump more money into the system to help boost growth.

Since Britain is not part of the Euro, the impact of the Eurozone crisis may have been mitigated to a significant degree. However, this brings little comfort for individual householders with unmanageable debts who are facing rising prices and having to consider options such as debt consolidation or agreeing to an IVA.

In Conclusion

Many people have experienced similar economic cycles in the past, although the current recession seems to have lasted rather longer than some of its predecessors. If a change in sentiment is a precursor to improved output and a return to growth, 2012 may well be the year in which the tide begins to turn.

About the Author

Rebecca Hall

Rebecca Hall worked as an independent mortgage adviser for 10 years before turning to financial journalism full time. She has strong links to the CAB advising families on mortgage refinancing.