Recession is nearly over

24 August 2009

The recession could soon be over in the UK, as a new report shows confidence among businesses has turned positive for the first time in two years.

Japan last week came out of recession, hot on the heels of the French and German economies, which both returned to growth in the second quarter.

And new data suggests the UK could be next. Confidence among business professionals has moved into positive territory for the first time in two years, providing further evidence of an improving UK economy.

According to the Institute of Chartered Accountants in England and Wales (ICAEW), there has been record rise in confidence from -28.2 to 4.8 - the highest jump since 2007.

The ICAEW now predicts that GDP - the official measure of economic health - will turn positive in the autumn.

Michael Izza, chief executive of the ICAEW, says the rise in confidence suggests the UK recession is at an end. He adds that policies such as quantitative easing (the creation of new money), the record-low Bank of England base rate and the temporary reduction in VAT have all helped improve confidence.

It is now hoped that revised GDP figures for the second quarter of 2009 - due to be released this Friday - could show the UK economy has performed better than expected. It is currently assumed that the economy contracted by 0.8% during the period.

But Izza warns: ““Although positive growth in the autumn seems more likely, there are concerns about the strength of the recovery. The recovery is very fragile and I would urge policy makers not to take any actions that could derail it.”

In his 2009 Budget, delivered in April, chancellor Alistair Darling said he expected the economy to contract by a total of 3.5% this year. He also predicted the UK would see the return of economic growth by the end of the year, and a rebound in 2010, with 1.25% growth.

Global markets have rocketed to 10-month highs on the back of raised hopes that UK economy will soon return to positive growth. The FTSE 100 has rallied 42% since hitting lows back in early March, with 2009 boasting the largest summer rally in equities for 25 years.

David Buik, economist at BCG Partners, says: “This has transpired as a result of improved sentiment, confidence returning from the deepest recession since 1929, economic data which is starting to bounce off the bottom of a vortex of despair and better-than-expected corporate results, which have manifested themselves as a result of stringent cost cutting exercises and redundancy plans."

Others agree there is now light at the end of the tunnel.

But such confidence comes with a word of warning. Dr Stephen Barber, head of research at indepedent online broker Selftrade, says: "Is it all over? The signs are good but I'm afraid it's still too early to say."

Asian markets, however, are getting in on the action, notching up triple digit gains following comments on Friday from the boss of the Federal Reserve that US is also moving ever closer to recovery.

Ben Bernanke, chairman of the Federal Reserve, told a conference in Wyoming that “economic activity appears to be levelling out” and that “the prospect for a return to growth in the near future appear good”

This was backed by the latest existing homes data from the US, which showed a 7.2% rise in July.


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