It certainly feels that every piece of news emerging form mainstream media and specialist news outlets appears to be bad in respect of the economy. Perhaps one consensus from market analysts is that a double dip recession is unlikely. I wouldn’t put money on it, would you?
From news of 10% of high street shops being vacant to the woes of Euro zone instability and American trouble, it certainly feels like we are still in trouble. The most worrying element of this is that central banks and governments have already taken unprecedented steps to recover the economy.
As far as individuals are concerned only a small percentage have felt it bad as a direct result of the recession. As the weeks go by this small number appears to be turning into a much larger number. So if you are feeling the pinch, you are not alone.
So what is in store for us? Well, according to the Bank of England we have higher inflation in the short term. This means we can expect the cost of living to continue increasing. There is also going to be little growth in the economy, encouraging low interest rates for the time being. Whilst this may offer relief, low interest rates should be considered a ticking time bomb by some. The rates will eventually go up and when they do it will be too much for some.
Recent statistics have shown a lower number of people declaring bankruptcy. Is it likely to remain this way? In my opinion, no. As interest rates rise and inflation continues to bite more people will seek the relief of bankruptcy.
Stock markets have been struggling for sometime. Many players are fearing that another crisis is upon us. In my opinion the crisis never went away.
A number of global issues remain but perhaps they are not the only cause behind the recent turmoil. It may well be that our governments actions have now become the cause.
For some time decision makers have been more than aware of the state of economies and the reasons for their demise. Toxic assets, created by the banks and not prevented by the governments, have travelled the world causing a downturn unprecedented on a global scale. In the United States of America banks collapsed and the entire UK banking system came within hours of collapse. The answer was to pump more money in to the banks, more money into the economy along side austerity measures in the hope of a turn around.
Whether it will work I cannot say but I do have some opinions.
There is an eventual shift of wealth taking place from the developed to the developing and emerging economies. Is borrowing more as countries, such as we have in the past, enough to try and retain our wealth and economic growth?
I cannot see how we are going to get out of such a mess unscathed. Most people in the UK have until now been relatively unaffected. Interest rates have remained low and it is only now that we are starting to feel the erosion of our disposable income through inflation of living costs, some of the austerity measures and low wage inflation. All of this affects consumption. When we are feeling poorer we do not spend. When we do not spend we are not contributing to the growth of the economy.
There is a crisis taking place in Europe. The united states economic recovery is stalling, the UK’s economy is possibly stalling too.
I’m not even scratching the surface of the troubles out there and I am no economist. However, it is difficult to see the light at the end of the tunnel for the economy at present. I think it would certainly help if we were producing as a nation. We were in great economic times when we were manufacturing!
The International Monetary Fund has issued a report detailing their view of the UK economy. This report will be viewed by many of our leading economists and analysts. It is available from the IMF website as a pdf file.
The report explains the risks facing the UK’s recovery from the financial crisis and states that although the recovery is in progress it is incomplete. There are a number of risks that can adversely affect the recovery, including:
- Housing valuation ratios, which are still 30% higer than their historical average. This can have the effect of surpressing consumption.
- Private consumption is weak because individuals have less disposable income. This can be attributed to low wage increases and higher inflation.
among others.
If you are interested in the UK economy then this report is certainly worth a look. Some useful summaries are also detailed on the BBC website.
Today more worries have been added to the strength of the UK economy. It has been reported that UK manufacturing contracted in July. The Markit/CIPS Purchasing Managers’ Index (PMI) is used to track what is happening in manufacturing. A figure below 50 represents a contraction. July had a figure of 49.1, down from 51.4 in June.
“Alarm bells are ringing for the UK manufacturing sector, which has seen conditions deteriorate rapidly since the start of the year,” said David Noble, chief executive of the Chartered Institute of Purchasing & Supply. “In marked contrast from those record highs, weaker consumer demand, sluggish domestic orders and a conservative approach to inventory holdings are weighing down on the overall health of the sector.”
Some analysts are now concerned that the economic recovery may now be running out of steam. Although a weaker pound is helping to keep exports healthy, a weaker domestic demand for goods and services is fuelling that worry.
Since the start of the credit crunch and subsequent recession forecasters have continually adjusted there recovery projections towards slower growth. The government have been most optimistic but they too have made adjustments in light of weaker growth.
This is not good news. There are many individuals on the brink of bankruptcy, perhaps only saved by the current low interest rates. If the economy does slip back into a recession job losses could be back on the table, if they are not already there.
