UK still sailing close to a recession
The UK’s economy has drifted into negative territory heightening fears that a recession will hit before the end of the year.
The National Institute of Economic and Social Research (NIESR) claims the economy fell by 0.2% in the three months to August, after a fall of 0.1% in the three months to July. The group is predicting a further fall for September, although this is not expected to be any worse than that of August.
“This is the first fall of output shown by our monthly growth figures since the series started in April 1996,” NIESR said in a statement.
Concerns are mounting that the UK is about to fall into recession, defined as two successive quarters of negative growth, after the official GDP figures from the Office for National Statistics (ONS) showed economic growth ground to a halt in the second quarter.
Most analysts believe that official third and fourth quarter data will show falling economic growth. This would put the UK in the grips of a recession by the end of the year – conditions not seen since 1991.
Howard Archer, chief UK and European economist at Global Insight, believes the economy is in for a tough time over the next nine months.
“We are expecting the economy to contract in the third and fourth quarters of this year and the first quarter of 2009, before starting to bounce back to modest growth in the second half of next year,” he says.
However, Archer adds: “The Monetary Policy Committee may indeed choose to wait until January before cutting interest rates because the prospect of inflation above 5% is very real. We see steady interest rate cuts to a low of 3.5% next year.”
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
The total money value of all the finished goods and services produced in an economy in one year. It includes all consumer and government consumption, government spending and borrowing, investments and exports (minus imports) and is taken as a guide to a nation’s economic health and financial well being. However, some economists feel GDP is inaccurate because it fails to measure the changes in a nation's standard of living, unpaid labour, savings and inflationary price changes (such as housing booms and stockmarket increases).